Article 1- Mass Production to Mass Customization

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~ P e rg a m o nEuropean Mana gement JournalVol. 14 No. 5 pp. 442-450 1996

Copyright © I990 Elsevier Science Ltdrinted in Great Britain. All rights reserved

S0 2 63 -2 3 73 (9 6) 00 03 7- 0 0263-2373/96 I5.00+ 0.00

From Mass P roduc t ion toMass Cus tomiza t ionThe Case of the Nat ionalIndust rial BicycleCompany o f JapanSURESH KOTHA Assistan t Professor of Business Policy and Operations Mana gem ent SternSchool of Business Ne w York University

B y m e a n s o f a d e t a i l e d s t u d y o f t h e N a t i o n a lI n d u s t r ia l B i c y c l e C o m p a n y o f J ap a n (N I B C ) ,S u r e s h K o t h a e x a m i n e s t h e d y n a m i c s o f i m p l e -m e n t i n g m a s s c u s t o m i z a t i o n i n a f i r m t h a t p u r s u e sb o t h m a s s p r o d u c t i o n a n d m a s s c u s t o m i z a t i o n i nt w o d i f f e r e n t f a c t o r i e s . N I B C r e a p s s u p e r i o r r e t u r n sb y e m p l o y i n g a s y s t e m w h i c h i n c r e a s e s i n t e r a c ti o nb e t w e e n t h e m a s s p r o d u c t i o n a n d m a s s c u s t o mf a c to r i e s a n d e n c o u r a g e s k n o w l e d g e c r e at io n .

T h e a u t h o r t h e n c o n s i d e r s t h e m o s t i m p o r t a n te x t e r n a l ( i n d u s t r y l e v e l ) a n d i n t e r n a l ( f ir m le v e l )c o n d i t i o n s w h i c h a r e n e c e s s a r y t o s u c c e s s fu l l yp u r s u e m a s s c u s t o m i z a t i o n , a n d p o i n t s o u t t h a t t h ei n t e r a c t i o n s a n d i n t e r r e l a t io n s h i p s b e t w e e n t h e m a r e

i m p o r t a n t t o a s u c c e ss f u l o u t c o m e t o o . C o p y r i g h t ©9 9 6 E l s e v i e r S c i e n c e L t d

n t r o d u c t i o n

Mass customizat ion as a v iable approach to compet i t ives t ra tegy is captur ing the imaginat ion of both managersand business academics. The term 'mass customization'has been descr ibed as ' a world of paradox wi th verypractical implications' (Davis, I987). The concept isbased on the not ion of ' economies of scope ' whereadvances in manufacturing and information technology,as wel l as new management methods (e .g . J IT and leanproduction), enable firms to provide product variety andcustomization through flexibil i ty and quick respon-siveness in ma ny industries. Em ploying mass

customization, f irms can produce enough variety inproducts and/or services so that nearly everyone findsexactly what he or she wants at a reasonable price (Pine,1993).

According to Kotler (1989) the concept of 'mass market 'i s dead and market segmentat ion has now progressed tothe era of mass customization. Kotler and others arguethat f irms operating in the current com petit ive landscapecan no longer produce standardized products or servicesfor homogenou s m arkets and s t i l l command super iorreturns. In this context, mass customization representsthe 'new frontier ' in a world of increasingly saturatedmarkets and s luggish growth in demand for manymanufactured products 0Nestbrook and Williamson,

1993).

The growing interest in mass customization has ledresearchers to sug gest that firms that shift from mas sproduct ion to the emerging paradigm of masscustomization will gain a competit ive advantage.Emerging l i terature on the topic suggests that massproduction and mass customization are fundamentallydifferent and incompatible paradigms. Pinee t a I (1993),the key proponents of this view, note that massproduction and mass customization approaches requiredifferent organizational structures, values system s,learning method s, and ways of relating to custom ers(see also Kotha, 1994).

Although this emerging l i terature on the topic is helpfulin enumerating differences between mass production and

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FROM MASS PRODUCTION TO MASS CUSTOMIZATION

mass cus tomization, we kn ow l it tle abou t the dynamicsof implementing mass customization in a firm that isheavi ly dependent upon mass product ion. Based on anin-depth study of the National Bicycle IndustrialCompany (NBIC), I examine the dynamics of imple-men t ing mass cus tom izat ion in a f i rm that pursues bo thmass product ion and mass cus tomizat ion (Kotha and

Fried, 1993) . By s imul taneously pursuing b oth massproduction and mass customization, NBIC hasdevelop ed a sys tem that it then exploits to reapsuperior returns. I discuss NBIC s com petit ive strateg yand il lustrate the mechanisms the firm has insti tuted tolink the two approaches. In doing so, the followingquestion is addressed: What are the important external(industry-level) and internal (firm-level) conditionsneces sary for successfully pursuing mass customization?

NBIC and i ts pproach to Com peti t ion

NBIC was Japan s secon d largest man ufacturer ofbicycles in 1992, with sales of nearly ¥20 bil l ion. Thefirm manufactures and markets bicycles under threediffere nt bra nd nam es: Panasonic, N ational, and Hikari.NBIC targets each brand at a unique market segment,and together these three brands cover a wide spect rumof bicycles sold by the firm in the Japanese BicycleIndu stry (JBI). Tw o of these brands, Na tional an d Hikari,form th e bulk of NBIC s prod uction and sales. The firm smo st exp ensive l ine, Panasonic, acco unted for sl ightlyless than 20 per cent o f to ta l product ion in 199 2. Theexecutives at NBIC recognize that the firm is heavilydependent upon the mass market for the bulk of i t s

revenu es and profits, and that this si tuation is unlikely tochange dramatically in the near future.

The firm has two factories, one for mass production andthe other for mass customization, located adjacent toeach other . Initially con cep tualiz ed as a pilot plant, themass-custom factory was built in 1987. Here the high-end, cus tom -made Panasonic b icycles are produ ced andshipped to dealers for delivery to individual customers.In 1992, NBIC prod uce d 700,000 bicycles, 90 per cent ofwhich were produced by the mass-product ion fac toryand shipp ed to Matsu shita s (NBIC s parent corpo ration)sales subsidiaries. In contrast, only about 12,000 of thesebicycles were produ ced a t the f irm s mass-customfactory.

The major i ty of the f i rm s 470 w orkers worke d in themass-product ion fac tory. Of these, s l ight ly mo re than 66per cent are classified as direct or l ine workers and therest as indirect workers. O nly a few (about 18 wo rkers in1989) of NBIC s best skilled l ine wo rkers p rodu ce thecustom-made Panasonic b icycles a t the mass-customfactory. Operating on a single-shift basis throughout theyear, these highly skil led workers produce a smallfraction of the firm s total bicycle produc tion.

To bet ter apprecia te the condi t ions under which the f i rmdeveloped its approach to customization, i t is necessary

to understand the industry conditions that NBIC facedduring the 1980s and early 1990s.

C h a n g i n g I n d us t ry C o n d i t i o n s

Bicycle producers in Japan can be subdivided into two

groups: manufacturers and assemblers. As their namedenotes, the assemblers purchase all their componentsfrom outside parts suppliers and only assemble thebicycles in their facil i t ies. In contrast , m anufacturersdesign and manufacture impo rtant structural com pon entsthat include the bicycle frames and front forks, but bu yothe r com pon ents (e.g. , pedals, wheels, and t ires) fromexternal suppliers. Historically, manufacturers accountedfor most of the bicycles prod uced in Japan. Starting withthe 1980s, bicycle shipments were evenly spli t betweenthe manu facturers and assemblers.

Bicycles in Japan are distributed through wholesalers,

retailers, supermarkets, and depa rtm ent stores. Th erewere approximately 1,600 wholesalers and about 38,000retailers in 1 99 0. W hereas ma ny wh olesalers wer esubsidiaries of leading manufacturers, such as Bridge-stone, M iyata, and N BIC, retail outlets, for the mos t part,we re small family-ow ned stores. A ppro xim ately 60 percent of bicycles sold were transferred from wholesalersto retailers, while the remaining were distributedthrough supermarkets and depar tment s tores locatedthroughout the various islands that consti tute Japan. Inthe pas t, la rge com pany-o wned wholesalers dominatedthe distribution of bicycles. Recently, sup ermarket chainsand household supers tores or home centers havestarted selling bicycles, thus enabling assemblers to gainan increasing share of the industry.

Durin g th e late 1980s, the bicycle indus try in Japanwasmaturin g rapidly. De man d was sluggish, and the ave rageunit price the customer was will ing to pay for astandard bicycle was falling. As the dem and for bicyclesplateaued, there was increasing competit ion among themanufacturers. To gain market share, manufacturingfirms such as Bridgestone and NBIC introducednumerous new models . Al though the average pr ices ofsporting bicycles, the high-end market segment, wereincreasing, even this segment was not experiencing anysubstantial increase in growth.

M a s s C u s t o m i z a t io n a t N I C

It was und er such indus try cond itions that NBIC sMa nagin g Director, Hata, along w ith the firm s president,decided that i t was t ime to rethink NBIC s strateg y. Thefirm then em barked on the p ath to conceptualize, developand implement an innovat ive approach to compet i tion.Am ong othe r th ings, NBIC s managers wanted a sys temthat wo uld help the firm increase i ts m arket share in thehigh-end market segment (Panasonic bicycles in thiscase). Mo re important ly, they w anted to devise a sys temof production and delivery that clearly differentiatedNBIC s Panasonic brand from competitors products, and

European Management JournalVo 4 No 5 October 996 44 3


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FROM M ASS PRODUCTION TO MASS CUSTOMIZATION

fulfil led the custom ers gro win g need for variety. In otherwords, they wanted to customize bicycles to individualcus tom er specifications. 1

Figure 1 illustrates the process steps involved inprodu cing a custom -Panasonic bicycle at NBIC s mass-custom factory.

The p roject leader, H ata, work ing with a multi-functionalteam (e .g . , product des igners , process engineers andprod uction workers), dev ised the firm s approac h to masscustomization . Und er his stewardship, the team com-ple ted the project in a mere four months . The new systemthat was devised was named thePanasonic rderingSystem(POS) and un veiled to custom ers in Japan.

Under POS, Japanese consumers were guaranteed thatcustom -mad e Panasonic bicycles will be delivered intwo weeks . Moreover, the cu s tom-mad e Panasonicbicycles were pr iced a t about 20 to 30 per cent h igher(depen ding on the particular mo del and features selected)than comparable Panasonic b icycles produc ed in themass-product ion fac tory.

The in t roduct ion of cus tom-made bicycles caughtNBIC s major compet i tors , Br idgestone and M iyata, bysurprise. In response, these manufacturers scrambled todevelop and implement thei r vers ions of mass-customization. Within a year, these two firms offeredtheir versions of a mass-customized bicycle, only to findthat their ent ry into this seg me nt was not as effective asNBIC s.

P u r s u i n g o t h M a s s P r o d u c t i o n a n dM a s s C u s t o m i z a t i o n

o t a n E i t h e r / O r A p p r o a c h

Recogniz ing that the mass-product ion and mass-customfactories can serve different segments, NBIC is pursu ingboth approaches simultaneously. The firm does not v iewthe paradigms of mass customization and mass produc-tion as an either/or proposit ion. The recognition of thisfact is critical for managers interested in mass customiza-tion, because the em ergin g li terature has focused mainlyon highlighting the differences between the twoapproaches, thereby suggesting that they areincompatible.

In an effort to pursue both approaches, NBIC s m anagershave intentionally created two separate manufacturingfacilities. The mass-production factory caters to a largemarket segment and is organized along tradit ional l inesof effcie ncy. Here, the emphasis in manu facturing isdriven b y efficiency considerations such as achievingeconomies of scale through long production runs.Bicycles are produced to inventory based on pre-determined forecasts. This factory isindirectlyl inked tothe final customers: inform ation on cu stom er preferencesfor popular bicycle models and colors or patterns isgathered at various retail outlets and fed back via salesand m arketing to manufacturing. In other words, NB IC ispursuing a low-cost strategy using i ts different productlines at the mass-production factory.

A careful stud y of N BIC s approac h to masscustomization illustrates many of its distinctive aspects.

The mass-custom factory, in contrast , at tempts to targeta smaller segment of the market via a differentiation

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FROM MASS PRODUCTION TO MASS CUSTOMIZATION

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F i g u r e 2 T h e I n t e ra c t i o n B e t w e e n M a s s c u s t o m i z a t i o n a n d M a s s p r o d u © t i o n S y s t e m s a t N B I C

strategy. In this approach , the fac tory isd i r e t l yl inked tocustom ers via retail outlets. For examp le, und er the POS,it is the mass-custom factory that assumes responsibil i tyfor comm unicat ing wi th cus tomers . A customer sselection of options, colors, patterns and models isdi rec t ly received by the fac tory. The f i rm es t imates thata customer can choose from about 8 mill ion possiblevariations, based on m ode l types, color, f lame size, andother fea tures , when order ing a cus tom-m ade bicycle. Inthis factory, the production process begins after thearrival of the custom er s ord er and specifications. O ncethe individualized bicycle order is produced, the bicycleis shipped the same day.

Not only is NBIC pursuing both approachessimultaneously, the Panasonic product l ine includes bothmass-produced and mass-customized bicycles. At firstg lance , such dupl ica t ion seems unwarranted and

wasteful . However, g iven that one of the object ivesfor in t roducing the POS was to increase thei r marketshare of the high -end p rodu ct l ine (Panasonic bicycles), itappears that NBIC s m anage rs have implicit ly reco gnize dthat the benef i t s of a t tempt ing mass cus tomizat iontranscends that market segment . In order to benef i t thefirm as a whole, they have insti tuted a centralizedstructure that enhances the sharing of informationbetween the facil i t ies and across market segments. Moreimportant ly, to prom ote informat ion exchange NBIC ssenior managers have insti tuted several simplemechanisms that increase the in teract ion between themass-production and mass-custom factories.

Much of the d iscuss ion regarding the dynamics of

pursuing both mass-product ion and mass-customizat ionstrategies simultaneously is prese nted in Figure 2. Figure2 also delineates the different organizational mechanism sinstituted to link the two different production facilities.By linking the two factories, N BIC s man agers h avecreated a dynamic sys tem for knowledge creat ion asdiscussed below.

A System for Knowledge creation

No t unlike other Japanese w orkers, NBIC s factoryemployees belong to the co mp any union and act ivelyparticipate in quality circle program s. They m eet once am on th to discuss quality and safety issues. Additionally,the workers are periodically tested and ranked based ontheir ski l l s by the senior managem ent . The h ighestranked workers are provided wi th the oppor tuni ty to

work a t the mass-custom factory where the wages arehigher. Since the process emp loyed in the product ion o fcustom-made bicycles requires a blend of human skil lsand com puter-integ rated manufacturing, a higher skillbase is necessary to function in the mass-cu stom factory.Therefore, NBIC s m anagers hav e established a systemwhere top-ra ted workers are ro ta ted between the twofactories.

This process of rotating workers appears insightful wh enwe consider Nonaka s (1991) argumen ts that creat ingnew knowledge in a f i rm involves more thanmechan ically processing objective information. Heargues that i t requires the tapping of tacit knowledgeand often highly subjective insights, intuitions, and

European Management Jou rnal Vo 4No 5 October 996 44 5


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ideals of employees. Many of the process-related skil lsrequired in complex manufacturing situations fi tNon aka s definit ion of tacit, rather than explicit ,knowledge. However, in order for the f i rm as a wholeto create new knowledge, i ts individual workers tacitknowledge mus t be t apped and madeexplicit, zThus, asNonaka (1991: 99) puts i t :

Indeed , because t ac i t know ledge inc ludes me nta l m ode ls andb e li ef s i n a d d i ti o n t o k n o w - h o w , m o v i n g f r o m t a c it t o ex p l ic i ti s r ea l ly a p rocess o f a r t i cu la t ing one s v i s ion o f the w or ld -w h a t i t is a n d w h a t i t o u g h t t o b e . W h e n e m p l o y e e s i n v e n tn e w k n o w l e d g e , t h e y a r e a ls o r e i n v e n t in g t h e m s e lv e s , t h ec o m p a n y, a n d e v e n t h e w o r l d . . . [ T h u s ] a rt i c u la t i o n( c o n v e r t i n g t a c i t k n o w l e d g e i n t o e x p l i c i t k n o w l e d g e ) a n din te rna l i za t ion (us ing tha t exp l ic i t know ledge to ex tend one sow n tac i t kn ow ledge base ) a re the c ri ti ca l s t eps in th i s sp i ra l o fk n o w l e d g e .

It is apparent that managers at NBIC recognize this

insight when they insti tute policies that require mass-custom factory workers to t ra in mass product ionworkers.

The rotation of workers between factories also has theeffect of fur ther broadening the k nowledg e and skil l baseof already skil led workers. This constant rotation, inconjunct ion wi th a centra l ized group of product de-signers and process engineers, enables the firm todevelop new manufacturing capabili t ies in bothadvanced custom-made bicycles (based on uniquecustomer requirements) and mass-produced bicycles(see Figure 2). For example, NBIC was the first bicycleman ufacturer in Japan to intro duce robo ts for painting inmass p roduct ion. With minor modif ica t ions , such robotswere then ad opted in the m ass-custom factory. Since therequirements of the mass-custom factory are dr iven byindividual custom er specifications (based o n b od ymeasurements and preferences), each bicycle flame andfork ma nufactu red has to b e check ed to insure that i tcorr esp ond s to the cus tom er s original specifications.The firm s eng inee rs an d skilled line w orkers, inconjunct ion wi th managers f rom NBIC s parentcorporation, have devised a 3-dimensional automaticmeas uring machine to a utom ate this verification task andreduce the t ime involv ed in com pleting this process. Thismachine is no w em ployed for qual i ty control inspections

in the mass-product ion fac tory. Fur thermore , much ofthe sof tware required to opera te the advancedinformat ion and compu ter-a ided manufactur ing sys temsused in the mass-custom factory was developed in-house .

Exploi t ing the Informat ion Differencese tween Segmen t s

By creating an organizational structure that enhan ces theinteract ion between the product and process engineers ,the firm also exploits the inform ation differences thatarise from co mp eting in different segm ents of the bicycleindust ry. For example , us ing the informat ion gathered

directly f rom consumers in the cus tom segment , productdesigners identify certain customer trends, such aspopular color combination and patterns, and uniquecustom ized-fea tures that are likely to appeal tocustomers of the broader mass-product ion segment ofthe industry. In the mass-custom factory, i t is thecustomer who, by choosing f rom thousands o f potent ia l

combinations, becom es directly involved in the ne wprodu ct dev elopm ent process. In this sense, thec o n s u m e rbecomes theprosumer, because he or she initiates theprocess of des ign and product ion ra ther than choosingam ong pre-manu factured alternatives (Womack, 1993).

Arm ed w i th d i rec t cus tomer feedback regarding choicesfrom amo ng the num erous alternatives, the produ ctdesigners, in conjunction with the process engineeringgroup, create new product designs for the mass-production factory. Based on the forecasts provided bythe market ing depar tment , the m ass product ion fac torythen manufactures the new design and in t roduces the

produ ct ah ead o f NBIC s leading rivals. Thus, the mass-custom factory acts as a conduit for new product ideas,as the cus tomer chooses f rom the numerouscombinations offered.

This gathering and exploitation of information from asegm ent of innovative users helps the firm todynamical ly manage the prol i fera tion of ne w productdesigns. By continually analyzing marketing inform ationand by rota t ing v ery highly ski lled workers between thetwo produ ction facili ties, the firm continually updates i tscompetencies and the organizational routines that i temploys .

The lessons and the m anufacturing skil ls the firmacquires in the custom -factory are readily transferableto the m ass production factory. Conseq uently, the mass-production factory has undergone slow, but significant,changes. For example, lot sizes employed in massproduction have steadily decreased from 50, a few yearsago to a mere 20 units in 1993.

Perform ance Implications

NBIC s custom ized bicycles man ufactured und er thePOS system only accounted for two per cent of to ta l

production. Prior to POS, NBIC s m arket share waslanguishing behind i ts two major competitors in thehigh-end segment , but wi th in a few years of in t roducingPOS, the firm s total high-en d (Panasonic) m arket shareincreased dramatically. For the first time in its history,NBIC became the indust ry s second larges t manufacturerof high-end bicycles. Furthermore, the contribution ofthe high-end Panasonic brand has m ore than d oubled to27 per cent of total revenues (Kotha and Fried, 1993).Despi te repeated a t tempts by compet i tors to offercustom ized bicycles, the Panasonic nam e is increasinglyview ed as the only truly mass customized bicycle inJapan. According to industry experts, the firm iscurrent ly v iewed as the leader and innovator in theindustry. The halo effect , result ing mo stly from the

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successful implementation of POS, enables the firm tocharge a sl ightly higher price for i tsmass producedPanasonic line.

the importance of having reliable suppliers close by, inorder to avoid the co s t of carrying large inventor ies andincrease the speed required to meet custom orders (TheEconomist,1995).

N e c e s s a r y o n d i t i o n s f o r S u c c e s s

Having discussed the dynamics of pursuing mass-product ion and mass-customizat ion approaches a t NBIC,I now address the question posed earlier:What are theimportant external (industry-level) and internal (firm-level)conditions ne ces sar y for successfully pursuing masscustomization?

E x t e r n a l o n d i t i o n s

Success is more likely if there is no well entrenched competitoralready pursuing mass customizationEarlier I m entio ned that N BIC s leading com petitors,

Br idgestone and Miyata , in t roduced mass-customizedbicycles in respon se to NBIC s POS. Unlike NBIC ,Japanese bicycle cus tomers neve r rea l ly considered e i therof these two firms to be a true leader in this mass-custom segment. As Yamazaki, asenior manager a t Br idgestone,puts it (Kotha and Fried, 1993):

Since NBIC was the f i r s t f i rm tointroduce this id ea , they haveestablished a strong image in thecustomer s mind. W hen youmention customization, the co n-sumer only thinks of Panasonic.Also , Na tional s parent co mpan y,Ma tsushita, is fam ous for i ts marketing savvy , and i t isdifficult for us to match them.

The indu stry needs to be characterized by increased productproliferation and new product introductions

In the late 1980s, demand for bicycles in the JBI hadplateaued and prices were fall ing. Manufacturers in theJBI found that there were continually introducing newmodels in an effort to maintain market-share. Forexample, NBIC offered ove r 250 different mo dels during1987, and wi thin each model type , cus tomers had achoice of color and o ther opt ions . NBIC s man agem entchanged about 80 per cent of models yearly. Similarly,the indu stry leader, Bridgestone, offered over 3 00models during the same period. Thus, just prior to theintroduction of POS, NBIC and others in the industrywer e faced w ith increased product proliferation.

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It appe ars that the re can be significant first m ov eradva ntage s in pursuing mass-custom ization. Being a firstmover in implement ing mass cus tomizat ion can beimportant , because the market for cus tomized productscan experience less than expected growth, as occurred inthe case of the JBI.

Access to a supplier network in close proxim ity is vital forSuccess

NB IC, located in Osaka, is closely linked with i tssuppliers, no ne o f whom are more than 40 m inutes away(Westbrook and W ill iamson, 1993) . The f requent andreliable delivery of bicycle components from suppliersenables NBIC to build truly custo m bicycles witho utcarrying excess ive inventories . As the f irm s managingdirector, Hata, puts i t , The re is l it tle nee d for us to holdlarge inventories of finished frames and other partsunlike others [competitors] outside the Kansai region .Unl ike NBIC, Br idgestone and Miyata have s implyincreased thei r inventor ies of f rame types and models izes to accom mod ate cus tomizat ion demands by thei rcus tomers . This approach has added to thei r overa l lcosts. Recently, f irms such as Compaq, who offercustomized PCs in the Uni ted Sta tes , have recognized

Pursuing the concept of mass customization ma y require thedevelopment of an inter-connected information netwo rk w ith aselect group of trained retailers

Given that cus tom-m ade pro-ducts are manufactured tospecifications of a unique cus-tomer, errors in processing theorder and in manufactur ing theproduct can be ex t remely cost lybecause such a product isunlikely to be sold. Moreimportantly, mistakes and errorscan undermine the cus tomersconfidence in the concept ofmass customization. A mass-

customization strategy, therefore, involves developinga system that rewards attention to details and stressesthe imp ortan ce of zero mistakes in all activities o f thevalue -creatio n process. Hence , retailers re spon sible forcollecting customers information need to be prop erlyeducated and trained in processing customer orders.

In the case o f NBIC , only a few select retailers offercustom -mad e Panasonic bicycles. Alth oug h this nu mb erhas gradu ally increased since the introdu ction of POS in1987, such a gradual increase has enabled the mass-custom factory to adapt, incrementally, to gro win g

com plexity resulting from the increased influx of customorders. Also, from a marketing perspective, permitt ingonly a select group of retailers to offer customizationcreates the notion of exclusivity. It is unlikely that all ofNBIC s Panasonic retailers will be perm itted to offercustom -mad e Panasonic bicycles.

To create an informat ion network by which PanasonicPOS retailers can comm unicate with the m ass-customfactory, NBIC managers depend upon s impletechnologies such as facsimile machines. Theemp loym ent of re la t ively inexpensive and wel l d i ffusedfacsimile technologies suggests that, in pursuing masscustomization, a firm does not necessarily have to relyon advanced comm unicat ion and network technologies .

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I n t e r n a l o n d i t i o n s

The strategy of mass-customization requires long-terminves tments in advanced-manufac tur ing technologies andhum an resource developmentThe NBIC example makes c lear the importance ofadvanced m anufactur ing technologies for the pursui t of

mass custom ization. The recen t attemp ts by Levi StraussCom pany to offer ' cus tom f i t' b lue jeans for wom en inthe Uni ted Sta tes was mad e poss ible due to a com puterinform ation netw ork syste m (Rifkin, 1994). Also, Pinee tal. (1993), in their discussions of Bally EngineeredStructures Inc. , a m ass cus tomizer for refrigerationproducts, points out that a sophisticated information-management sys tem cal led a ' computer-dr iven in te l -l igence network' was at the heart of this firm's approachto mass customization.

However, NBIC's managers clearly recognize thathuman resource development is also crit ical . At NBICit is humans, in conjunct ion wi th ad vanced techno logy,who create the new knowledge required for ref in ingexisting skil ls and dev elop ing m anufacturing capabili tiesessential for the pursuit of their approach tocustomization. I t is another example of how Japanesefirms levera ge the ma nufactu ring capabilit ies that resultf rom a blending of advanced computer-basedtechnologies and human expertise. The firm recognizesthat informat ion technology and computer- in tegra tedmanufacturing are necessary, but not sufficient, forachieving the flexibility and responsiveness critical tomass customization (Garud and Kotha, 1994).

Access to substantial in-house engineering expert ise andmanufacturing capabil i t ies is necessary for successfullyimplement ing the conceptMuch of the process technology and computer izedinform ation sy stem s (e .g. , nume rical control machines,robotics, interfacto ry local area networks ) installed byNBIC's mass-custom factory were an outgrowth of in-house engineer ing and manufactur ing exper t iseaccumulated over many years . Such competence isimpo rtant because, althoug h mass customization hasobvious market appeal, i t can easily become amanufactur ing and logis t ics n ightmare wi thout a h ighdegree of manufactur ing competence (Westbrook andWilliamson, 19 93) . Therefo re, it appears that f irms

contemplat ing th is approach to compet i t ive s t ra tegywill be forced to rely heavily on in-house expertise inorder to implement their versions of mass customization.

Each plan t s m anu factu ring tasks and com peti tive priorit iesneed to be matched to i t s product~market envi ronmentIn an effor t to pursue both approaches , NBIC m anagershave in tent ional ly created two separa te manufactur ingfacilities. This separation of the two factories is akin towhat Skinner (1974) has termed as ' factory focus' .Acc ordin g to Skinner, no single factory can do all things(e.g., quality, cost, flexibility, a nd d elivery ) equ ally welland hence, fac tor ies that are more focused outperformthose that a t tem pt to fu l f il a d iverse range ofcompetit ive priorit ies. This is because of the inherent

com plexity involve d in pursing multiple an d som etimesconflicting objectiv es (Skin ner, 197 4). The refore, firmscontemplat ing pursuing both mass product ion and m asscustomizat ion may consider adopt ing a focused factoryapproach at the plant level.

Inst i tut ing m echanisms to foster interactions am ong the

focused plants m ay be necessary for new know ledge creationand fo r a t ta in ing f lex ib i l i tyEarlier I discussed how NBIC's establishment oforganizational mechanisms has fostered interactionsbetw een the factories. NB IC's manag ers hav e implicitlyrecognized that the benefits of pursuing mass-customization transcends the small segment forcustomized bicycles in the JBI. The mechan isms suchas worker rotation, the sharing of process ideas throughsuch rotations, and the centralization of engineeringpersonnel can be em ployed by other f i rms in teres ted inthe concept.

The centralization of the design and process en gineeringfunction enhances NBIC's abil i ty to capture novel-product ideas from the innovative-lead users in thecustom segment and then exploi t them in the mass-produ ction arena. Doing so enables the firm to introducenew products rapidly and avoid the mindless productproliferation characteristic of many Japanese firms (Stalkand W ebber, 1993). This practice also helps ove rcom ethe disadvantages associated with worker skil ll imitations and promotes the diffusion of the bestpractices among the factories. Rotating workers alsoresults in the establishment of a 'system' that enables theconvers ion of taci t knowledge to explicit knowledge.Taken tog ether, such mechanism s enable a firm to createnew kno wled ge and attain g reater strategic flexibili ty.

M as s custom ization requires a culture that focuses onknowledge crea t ion and the development of manufac tur ingcapabilitiesThe effective use of mass custom ization hinges o npromot ing an a t t i tude that i s conducive to cont inuousimpro vem ent, organizational and individual learning, thedeve lopm ent of new capabili ties, and the diffusion of thebest practices among a firm's plants. NBIC's case vividlyil lustrates the need to focus on all of these elementssimultaneously. M ore ov er, it clearly fits Florida andKenn ey's (1990 ) observa tion that, perhaps, the ke y

element of the Japanese industrial system lies in itsabili ty to directly harness the wo rkers ' know ledge at thepoint of product ion. Therefore , the promise of masscustomizat ion through advanced technology is not thelights-out factory, but a tool or an approach that moreeffectiv ely taps all the dive rse capabilities of emp loy eesto serve custom ers (Pine etal., 1993).

The s t ra tegy requires a savv y market ing group tha t can exc itecustomers about individualized product offeringsAccording to the general manager of sales at NBIC,custo mer service, 'appropriate ' pricing, and extensiv ecom mun ication with th e custom er are all integral parts ofNBIC's approach to mass customization. As he put i t ,'We could have m ade the [delivery] t ime shorter, but w e

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F R O M M A S S P R O D U C T I O N T O M A S S C U S T O M I Z AT I O N

Emerg ing Pa rad igm fo r Compe t i t ive Advan tage .StrategicMa nagem ent .Journal16, pp. 21-42.

Kotha, S. and Fried, A. (I993).Na tional Bicycle Industrial Comp any:Implementing a Strategy of M ass Customization.N e w Yo r kUnivers i ty/ Internat ional Univers i ty of Japan Case Ser ies .

Kot ler, P. (1989) . From Mass Market ing to Mass Customizat ion.Planning Review17, pp. 10-13.

Nonaka, I . (1991) . The Knowledge Creat ing Company.HarvardBusiness Review69, 6, pp.96--104.

Pine II, B.J. (199 3).Ma ss Custom ization: The N ew Frontier inBusiness CompetitionBoston: Harvard Business School Press.

Pine I I , B.J ., Victor, B. , and Boyn ton, A .C. (1993) . Makin g M assCus tomiza t ion Work .Har vard Business Review71, pp. 108-119.

Rifkin, G. (1994). D igital Blu e Jeans Pou r Data a nd Legs intoCus tomized F i t . TheNew York TimesNovember 8 , p .1 ,column 6, sect ion A.

Skinner, W. (1974). The Focused Factory.Harva rd Business ReviewMay-June , pp . 113-121 .

Stalk , J r. G. and W ebber, A.M . (1993) . Japan s Dark Side of Time.Harva rd Business Review71, pp. 93-102.

Westbrook R. and Wil l iamson, P. (1993) . Mass Customizat ion:Japan s N ew Frontier.European M anage men t Journal11, I,pp . 38 -45 .

W omack , J .P. (1993) . A Bo ok Review ofMass Customization.Sloan Man agement Review34, pp. 121-122.

S U R E S H K O T H ALeonard R. Stern Schoolof Bus iness Ne w YorkUniversi ty 40 W est 4thStreet Room 7-10 N ewYork Ne w York S ta te1 0 0 1 2 - I I 2 6 U S A .

Suresh Kotha is anAssistan t Professor ofBusiness P olicy andOpera t ions Management

at the Stern School of Business N ew Yo rkUniversity. He has also taught at the InternationalUniversi ty of Japan Graduate School ofM ana gem ent. His teaching and research interests arein the areas of business strategy m anufa cturingstrategy and U S~Japan comparative practices. Dr.Kotha serves on the editorial board of theA c a d e m yo f M a n a g e m e n t J o u rn a land the S t r a t e g i c

M a n a g e m e n t J o u r n a land is an Associate Editor ofthe J o u rn a l o f O p e r a t i o n s M a n a g e m e n t .He iscurrently conducting a study w ith colleagues fro mm an y different universities that focuses ondetermining the environment and strategic correlatesof performance in the Japanese automobile steel andmachine tool industries.

4 50 European Manage ment JournalVo 4No 5 October 1996

Documents

Article 1- Mass Production to Mass Customization