Meet mass customization head on
TaylorMade and other manufacturers pursue postponement strategies in the warehouse
By Joy LePree, Contributing Editor -- Manufacturing Business Technology, 11/1/2002 12:00:00 AM
TaylorMade-adidas Golf, a manufacturer of golf clubs, had a large stock offering as well as a small make-to-order business of customizing clubs for specific customers. But since embracing postponement strategies about a year ago, it has been able to grow its make-to-order business and provide mass customization to its retail customers.
While a number of software applications help the Carlsbad, Calif.-based company plan and execute its supply chain operations, a warehouse management system (WMS) package plays a key role in the company's postponement strategy. Postponement means that manufacturers delay—or postpone—the customization of products until after the products, or a set of common components, have left manufacturing.
"Our WMS serves as a tool that allows us to be more flexible with the growing segments of our make-to-order business," says Brad Barnett, director of operations with TaylorMade. Using the kitting and light assembly functions available through ViaWare WMS, a system from Grand Rapids, Mich.-based Provia Software, Barnett says TaylorMade has been able to add a second category to the make-to-order portion of its business model.
"We always were a make-to-stock company for our standard clubs, and we offered customization for specific customers that required a different-length shaft or other alteration," says Barnett. "But due to the flexibility provided by ViaWare, we've been able to push this further out, leave some stock in the component stage, and then make the clubs to order as needed."
Barnett says this type of mass customization has held many benefits for TaylorMade. "We maintain the flexibility with our component stock and are able to limit our finished goods inventory risk," he says. "In our industry, obsolescence is a concern because we frequently turn a product line every 18 months to two years. Our product can appear simple at first glance, but when you take all the factors associated with the possible combinations of head, shaft, materials, and flex of shaft and grip across the product line, we would continue to run a very high risk of obsolescence and scrap if we were to try to maintain a finished goods inventory based on forecast."
So to defy the odds, TaylorMade is moving into a make-to-order business model in which planning software and WMS are the key players. The planning software sits on top of all the execution systems and is used to create a master schedule. Provia's WMS system has been implemented in the component warehouses so that accurate inventory counts, postponement functions, and mass customization are possible.
Why postpone?
TaylorMade is not the only manufacturer moving into the world of mass customization. "More and more manufacturers are doing everything they can to get rid of inventory, and the place to start is with finished goods inventory," says Nelson Nones, senior director of product management with Apriso, a Long Beach, Calif.-based vendor that offers WMS and manufacturing execution applications. "Postponement allows manufacturers to limit their finished goods inventory by postponing production of the final product as long as possible. Often production of the finished product doesn't happen until the order is in hand, and then it is shipped out immediately. As a result, some manufacturers are keeping little, if any, finished goods, which delays the investment a company has to make in its finished goods inventory."
For years, manufacturers were tempted to do this using advanced planning systems, but it was never fool-proof. "Planning systems are good tools, but when reality hits, you have to react very quickly to meet the change in demand in a real-time fashion," says Paul Crist, a company vice president with Provia. "But if you can build the sub-components to the most generic level and add a WMS that can take an order and explode it into a bill of material, with the components being the generic SKUs [stock-keeping units], pick the exploded bill of material, deliver it to a kitting station, and then have it assembled for final distribution, then this is the most effective method of mass customization and inventory reduction for the manufacturer."
According to Chris Heim, CEO of HighJump Software, an Eden Prairie, Minn.-based WMS vendor, the need for these light manufacturing activities has forced WMS vendors to include more functions in their packages. "We've had to weave in functionality that would previously have been considered manufacturing functionality—such as bills of material creation for kits, assembly instructions, and reporting of completions against manufacturing steps—so our customers can postpone the production of their finished goods and cut their own costs."
The financial perks of using postponement to achieve mass customization vary by industry, manufacturer, and product, but in general, any business that has an inverted pyramid-type bill of material—a small number of raw materials, a slightly larger number of semi-finished products, and a very large number of finished product configurations based on those—will probably achieve worthwhile benefits.
Industries such as consumer packaged goods, retail, and high-tech are currently jumping on the postponement bandwagon for a variety of reasons. In an effort to eliminate expired inventory, the consumer packaged goods industry, which includes nutritional products and food, often performs labeling and packaging in the distribution chain.
Products such as cans of vegetables or bottles of pills usually have multiple packaging configurations or labeling requirements. From an inventory management point of view, each of those different packaging configurations or labels is a separate SKU and a separate unit of finished goods inventory. But if the product itself is the same for all those configurations, a manufacturer could postpone the customization by producing the unlabeled bottle or can of product, and performing the final packaging and labeling as orders are taken.
"By doing this, they aren't in the position of having to forecast what the individual demands will be for each configuration," says Nones. "They only have to forecast the aggregate demand for all the unfinished bottles, and the margin of error is usually much lower. As a result, there are fewer deviations from forecasts and the manufacturer doesn't run the risk of accumulating excess or obsolete inventory of any of those packaging configurations."
One Apriso customer, a manufacturer of private-label vitamins, postpones packaging for its smaller customers to alleviate expired inventory. By letting the product remain in bulk tablet form until customer orders are received, and only then doing the packaging and labeling, the company has been able to cut inventory by about 40 percent over the last two years.
Nimble packaging
Manufacturers that service the retail industry also employ postponement strategies. "In industries like apparel, trends based on popularity drive demand, and manufacturers don't want to commit themselves to certain amounts of inventory if they can have the flexibility provided by a make-to-order business model," says David Landau, director of product management with Manhattan Associates, an Atlanta-based WMS vendor.
Landau points out that the retail supply chain can be divided into two categories—a make-to-order model that does kitting and light assembly, and a model that does strictly add-ons like sewing in private labels or specific price ticketing.
Timex Corp., a Middlebury, Conn.-based watch manufacturer, uses the kitting functionality in Provia's ViaWare WMS to customize packaging. Timex manufactures the generic product in the Philippines and ships it to the warehouses in the U.S., where it waits until orders come in from specific retail customers with individual packaging needs. "Any one of our watches could have as many as eight different packages for our various customers," says Steve Garrett, director of global supply chain with Timex. "For example, one customer wants a string tag, one wants a special UPC [Uniform Product Code label] on the bottom, one wants special packaging that hangs on pegs, and another may want a special security device. Because each of our customers has its own little quirks, the finished product is a unique SKU. It would be difficult to track if I brought finished goods in their final configurations from the Philippines. So instead, we bring in generic product and add all the proper bells and whistles for each customer after they've placed the order."
Other manufacturers—including totes-Isotoner, a Cincinnati-based manufacturer of gloves, umbrellas, and other consumer goods—are using postponement functions to perform add-on services such as price ticketing. "Using a WMS package from Manhattan Associates, we are able to do price ticketing after the order is picked, which minimizes the SKUs we keep on hand," says Doug Baker, totes-Isotoner's director of distribution. "If you have three customers with the same SKUs, you can keep one pile of goods without creating an SKU for each customer because of their individual price stickers. Our 8210 navy umbrella always will be an 8210 navy umbrella, regardless of any customization."
Yet it is the high-tech industry that may be the perfect sector to embrace postponement, due to the nature of the products. "In the high-tech industry, there's a new generation of technology every few months, so the value the manufacturer can get for each product drops dramatically within the first few months of manufacturing," says Manhattan's Landau. "Being able to wait until the last minute to assemble the product helps get the most value for each product, and minimizes the potential for obsolete finished goods.
| Who's inside | ||
| Apriso www.apriso.com | HighJump Software www.highjumpsoftware.com | Manhattan Associates www.manh.com |
| Provia Software www.provia.com | ||
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