THE CUSTOMIZATION-RESPONSIVENESS SQUEEZEIN THE MACHINE TOOL INDUSTRY

Machine Tools are machines (such as lathes, milling machines etc.) that can be, and are, used to manufacture other machines. For this reason, they are often termed "mother" machines. As industrialization increases, machine tool manufacturers increasingly find themselves forced to produce a wide variety of machines in relatively small volumes, offer some degree of customization, and deliver rapidly. This trend, termed the "customization-responsiveness squeeze", is characterized by the need to deliver differentiated products in considerably less time than it takes to make them. Some characteristics of this environment are:

The product is expensive; Volumes of products with any particular combination of features are small, and their demand

is difficult to predict; The time to purchase components and manufacture the product is much greater than the

delivery time that customers expect; Customers desire customized features of the product that often need to be established early in

its build cycle; and Customers are unwilling to bear the vendor's cost or risk of carrying unsold units.

Typically, build times are 10-25 weeks longer than desired delivery times. Therefore, a firm needs to have a machine well into the production process before it can be offered to customers with competitive lead times. Because many expensive components may not be possible to use in other machines or for alternate models of the same machine type, a firm is rather committed to its forecast. Inevitably, the forecast is not completely accurate, and firms have had to develop tactics for coping with the consequences. This case describes the responses of three firms in this industry.

Company A is a medium-sized, privately owned firm. One type of machine tool accounts for 70 percent of its business. Because of its narrow focus, Company A relies on a moderate finished-goods inventory of the main line's standard models to buffer the effects of forecast inaccuracies. But this inventory does not always cover demand. Rather than expand this inventory, the company invokes other practices when neither in process nor finished units will be available in time.

If the order is for a low-end model, the customer may be induced to buy an available larger or higher-grade model. If not, then the company may offer the customer one of these units with the unwanted features removed or disabled. If the order is for a high-end model, a showroom unit of exceptional capability may be delivered on loan until the specified unit can be prepared. Only in very unusual circumstances will the production process be disrupted to accommodate a specific customer order. On such occasions, work on the special units is expedited to meet the delivery deadline. The company's production process has slack, so expediting a unit through the latter production stages is feasible. In addition, the firm has few layers of management, and the manufacturing managers can easily approach the firm's owner to get authorization for the required expediting. To date, the firm has not altered its product designs to accommodate the lead-time pressures it is experiencing, relying instead on incremental product and production process improvements to keep the problem under control. Even so, Company A is concentrating on improving its production process/ flow to allow faster throughput. Unfortunately, it will still have to commit to specific model production on a forecast basis, since the total throughput time is expected to remain longer than competitive delivery lead times.

In contrast to Company A, Company B reflects the experience of some of the industry’s foreign-based competitors. It gained substantial market share through the introduction of its high-volume, standard models. It competes in several machine tool industry segments, producing a wide variety of machine types in a centralized facility. Company B strives for level employment in manufacturing and has consequently developed mechanisms to buffer the production process from

being disrupted by the industry's demand swings. It has established a system whereby the manufacturing department builds machines according to a six-month forecast and then sells the machines to the marketing department. The manufacturing department is judged on its performance relative to planned output. In slow periods, marketing must absorb unsold units, holding them as finished goods or pushing them on to their distributors. In the past, this make-to-stock approach worked well with the limited range of standard units that were produced in reasonably high volumes. Moreover, Company B has the financial resources to carry inventories of these machines.

But pressure to provide faster response to requests for its nonstandard models has pushed Company B into broadening its range of domestically produced models. Its wider product variety means that B cannot rely on the kind of steps taken by A. Company B has established a liaison group to negotiate marketing's requests for in-process unit modifications, and has pushed customization into a marketing-operated facility. The liaison system, the post-manufacturing customization, and the attempt to build a finished goods buffer are all directed at minimizing disruptions to established production plans. Company B's management systems still resist the de-stabilizing influences of customization. As a result, even with the various mechanisms to provide for un-forecasted units, the salesforce has learned not to expect many changes to in-process units and instead "sells to the forecast". Sales efforts have concentrated on selling what is available or, in effect, locating customers who have specification and timing requirements that match the production schedule.

Company C is one of the industry's oldest and larger firms, with considerable engineering expertise in product and manufacturing process design. When one of its main product divisions began to experience considerable delivery lead-time pressure, its managers took a different approach for improving its responsiveness – through redesign of both the products (to achieve greater component commonality) and the production process (to reduce production lead times).

Like Company A, this division has a dominant product line, which makes for a simpler problem than the one facing Company B. It chose to redesign its product line on a modular basis, and has also adopted flexible manufacturing methods to speed throughput. However, production lead times still exceed typical delivery lead times by about 15-20 weeks. The modularized design allows greater flexibility for matching in-process machines to customer orders, but the practice of changing unit specifications has injected some instability into the production schedule. On a few occasions, unmatched machines nearing completion have undergone major teardowns to alter them to suit unfilled orders for similar models. The division now has a policy of not quoting a delivery time of less than eight weeks in an effort to control the number of last-minute changes. Despite these measures to ease the order-matching problem, the division's salesforce tends to sell to the forecast, concentrating to some extent on selling available units that are eight to sixteen weeks from completion.

These three companies demonstrate workable, though imperfect, methods that have allowed the firms to maintain market positions in their respective segments.

Issues to think about:

Contrasting approaches taken by the companies towards the "squeeze" including the nature/ degree of customization, flexibility, and lead time reduction approach employed by each company; reasons for choice and workability of approaches; how the severity of the problem and the mechanisms employed vary with the degree of customization; and how unique resources/ capabilities affect the choice of approach.