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Intelligent Non-hierarchical Manufacturing Networks

IntelligentNon-hierarchical

Manufacturing Networks

Edited byRaùl Poler,

Luis Maia Carneiro, Thomas Jasinski,Marc Zolghadri, Paolo Pedrazzoli

First published 2013 in Great Britain and the United States by ISTE Ltd and John Wiley & Sons, Inc.

Apart from any fair dealing for the purposes of research or private study, or criticism or review, aspermitted under the Copyright, Designs and Patents Act 1988, this publication may only be reproduced,stored or transmitted, in any form or by any means, with the prior permission in writing of the publishers,or in the case of reprographic reproduction in accordance with the terms and licenses issued by theCLA. Enquiries concerning reproduction outside these terms should be sent to the publishers at theundermentioned address:

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© ISTE Ltd 2013The rights of Raùl Poler, Luis Maia Carneiro, Thomas Jasinski, Marc Zolghadri, Paolo Pedrazzoli to beidentified as the author of this work have been asserted by them in accordance with the Copyright,Designs and Patents Act 1988.

Library of Congress Control Number: 2012950754

British Library Cataloguing-in-Publication DataA CIP record for this book is available from the British LibraryISBN: 978-1-84821-481-1

Printed and bound in Great Britain by CPI Group (UK) Ltd., Croydon, Surrey CR0 4YY

Table of Contents

Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xv

Part 1. Strategic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Chapter 1. Mass Customization as an Enabler of Network Resilience . . . 3Frank T. PILLER and Frank STEINER

1.1. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31.2. The increasing importance of customer-centric manufacturing networks 41.3. Mass customization: providing an organizational structure for resilientmanufacturing networks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61.3.1. Solution space development . . . . . . . . . . . . . . . . . . . . . . . 81.3.2. Robust process design . . . . . . . . . . . . . . . . . . . . . . . . . . . 111.3.3. Choice navigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

1.4. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161.5. Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171.6. Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Chapter 2. The Implications of Product Variety for SupplyNetwork Design. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23Andrew LYONS, Lucy EVERINGTON, Jorge HERNANDEZ and Dong LI

2.1. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 232.2. Literature review. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242.2.1. Variety and customization management . . . . . . . . . . . . . . . . 242.2.2. Examples of product variety increase . . . . . . . . . . . . . . . . . . 262.2.3. Network classification systems . . . . . . . . . . . . . . . . . . . . . . 27

2.3. Integrated framework for customization and variety management . . . 282.3.1. Strategic considerations . . . . . . . . . . . . . . . . . . . . . . . . . . 312.3.2. Operational considerations . . . . . . . . . . . . . . . . . . . . . . . . 33

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2.3.3. Network collaboration . . . . . . . . . . . . . . . . . . . . . . . . . . . 342.3.4. Customization/variety enablers. . . . . . . . . . . . . . . . . . . . . . 35

2.4. Conclusions and future research . . . . . . . . . . . . . . . . . . . . . . . 372.5. Acknowledgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 372.6. Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Chapter 3. Model for the Integration of Product, Process andSupply Network in Mass Customization Scenarios . . . . . . . . . . . . . . . 41Eduardo SAIZ, Eduardo CASTELLANO, Raquel SANCHIS, Raúl POLER andRubén DE JUANMARÍN

3.1. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 413.2. Conceptual model overview . . . . . . . . . . . . . . . . . . . . . . . . . . 423.3. ORM problems. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 443.4. ORM building blocks and related ORM concepts . . . . . . . . . . . . . 473.4.1. Order fulfillment strategy . . . . . . . . . . . . . . . . . . . . . . . . . 483.4.2. Order generation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 493.4.3. Order instantiation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 503.4.4. Order promising. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 563.4.5. Order planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 583.4.6. Order execution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

3.5. ORM key performance indicators. . . . . . . . . . . . . . . . . . . . . . . 603.6. ORM toolbox. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 613.6.1. Toolbox matrix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 633.6.2. Toolbox guidelines . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

3.7. ORMWeb navigation tool . . . . . . . . . . . . . . . . . . . . . . . . . . . 673.8. Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 683.9. Acknowledgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 703.10. Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

Chapter 4. Supply Network Configuration . . . . . . . . . . . . . . . . . . . . 73Eduardo CASTELLANO, Juan Manuel BESGA, Jone Uribetxebarria andEduardo SAIZ

4.1. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 734.2. Supply network simulation: A literature review . . . . . . . . . . . . . . 744.2.1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 744.2.2. SN simulation methods . . . . . . . . . . . . . . . . . . . . . . . . . . 754.2.3. SN simulation conclusions . . . . . . . . . . . . . . . . . . . . . . . . 79

4.3. Research problems and research approach . . . . . . . . . . . . . . . . . 794.3.1. Research problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 794.3.2. Research approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

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4.4. DSS description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 824.4.1 DSS dynamic view . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 824.4.2 DSS static view . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85

4.5. DSS supply network configuration experiments . . . . . . . . . . . . . . 894.5.1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 894.5.2. Experiments description . . . . . . . . . . . . . . . . . . . . . . . . . . 894.5.3. Simulation experiments . . . . . . . . . . . . . . . . . . . . . . . . . . 99

4.6. Conclusions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1014.7. Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1024.8. Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102

Chapter 5. Performance Management . . . . . . . . . . . . . . . . . . . . . . . 107Pedro S. FERREIRA, Pedro F. CUNHA, Luís MAIA CARNEIRO and André SÁ

5.1. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1075.2. Strategic decisions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1105.3. A framework for performance management . . . . . . . . . . . . . . . . 1125.3.1. A stakeholder’s centered approach. . . . . . . . . . . . . . . . . . . . 1155.3.2. A value-based approach – the key success factors . . . . . . . . . . 1165.3.3. Reference process for performance management . . . . . . . . . . . 118


Chapter 6. Sustainable Product-Process-Network . . . . . . . . . . . . . . . . 125Luca CANETTA, Donatella CORTI, Claudio Roberto BOËR and Marco TAISCH

6.1. Sustainable mass customization as a winning business model . . . . . . 1256.2. Tools enabling the solution space development . . . . . . . . . . . . . . 1286.2.1. Collect customer’s requirements tools . . . . . . . . . . . . . . . . . 1296.2.2. Design tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1296.2.3. Production technologies . . . . . . . . . . . . . . . . . . . . . . . . . . 1306.2.4. Assessment tool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1306.2.5. Configurator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130

6.3. Design process and tools enabling the solution space development. . . 1316.3.1. Analysis of design process: shifts introduced from massproduction to sustainable mass customization . . . . . . . . . . . . . . . . . 1316.3.2. Relationship between design process shifts and enabling tools . . . 134

6.4. Supporting the implementation of the tools . . . . . . . . . . . . . . . . . 1386.4.1. Collect customer’s requirements tools . . . . . . . . . . . . . . . . . 1396.4.2. Design tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1406.4.3. Production technologies . . . . . . . . . . . . . . . . . . . . . . . . . . 1406.4.4. Assessment tool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1416.4.5. Configurator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142

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6.5. Managerial implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1446.6. Acknowledgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1456.7. Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145

Part 2. Tactical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147

Chapter 7. Business Community Management . . . . . . . . . . . . . . . . . . 149Ricardo ALMEIDA, Luis MAIACARNEIRO, André SÁ, Pedro S. FERREIRA andRosanna FORNASIERO

7.1. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1497.2. Business communities management . . . . . . . . . . . . . . . . . . . . . 1517.2.1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1517.2.2. Main actors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1537.2.3. BUILD phase 1: creating a Business Community . . . . . . . . . . . 1537.2.4. BUILD phase 2: Business Community operation . . . . . . . . . . . 1597.2.5. BUILD phase 3: Business Community metamorphosis . . . . . . . 1657.2.6. BUILD phase 4: Business Community dissolution . . . . . . . . . . 1657.2.7. ICT support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166


Chapter 8. Network Collaboration . . . . . . . . . . . . . . . . . . . . . . . . . 169Bernd SCHOLZ-REITER, Christian MEINECKE and Daniel RIPPEL

8.1. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1698.2. Collaboration – definition, concepts and mechanisms. . . . . . . . . . . 1708.3. The European electronic industry (EEI) and collaboration challenges . 1718.3.1. EEI in numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1728.3.2. Application segments of the European electronic industry . . . . . 1738.3.3. Collaboration challenges in the European electronics industry . . . 175

8.4. Network collaboration in the EEI – results of use case studies. . . . . . 1778.4.1. Requirements and indicators for efficient network collaboration . . 1778.4.2. Network collaboration in the EEI – application segment profiles . 178

8.5. Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1828.6. Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182

Chapter 9. A Collaborative Planning Approach for Non-hierarchicalProduction Networks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185Ricardo ALMEIDA, César TOSCANO, Américo LOPES AZEVEDO andLuis MAIA CARNEIRO

9.1. Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1859.2. Related work . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188

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9.2.1. Collaborative networks . . . . . . . . . . . . . . . . . . . . . . . . . . 1889.2.2. CN governance models . . . . . . . . . . . . . . . . . . . . . . . . . . 1899.2.3. Collaborative planning approaches . . . . . . . . . . . . . . . . . . . 189

9.3. Collaborative planning requirements . . . . . . . . . . . . . . . . . . . . . 1929.4. Collaborative planning approach . . . . . . . . . . . . . . . . . . . . . . . 1949.4.1. Aggregate collaborative planning . . . . . . . . . . . . . . . . . . . . 1959.4.2. Detailed collaborative planning . . . . . . . . . . . . . . . . . . . . . 1989.4.3. Evaluating the solutions’ quality . . . . . . . . . . . . . . . . . . . . . 199


Chapter 10. Assessment of the Impact of Missing Delivery Reliability . . . 205Günther SCHUH, Thomas JASINSKI, Itziar RICONDO and Arkaitz URIARTE

10.1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20510.2. Importance of delivery reliability in today’scompetitive environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20610.2.1. Challenges of purchasing in the machine tool and equipmentindustry. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20610.2.2. Effects of missing delivery reliability innon-hierarchical networks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20810.2.3. Failure of approved coordination mechanisms . . . . . . . . . . . . 20810.2.4. Necessity of a non-centralized coordination mechanism . . . . . . 209

10.3. Mini-survey – delivery reliability in European machine tool industry 20910.3.1. Overview of the survey’s participants . . . . . . . . . . . . . . . . . 21010.3.2. Main findings – challenges in logistics . . . . . . . . . . . . . . . . 21110.3.3. A branch’s desire – determination of costs ofunpunctual deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212

10.4. Calculating the monetary value of in time deliveries. . . . . . . . . . . 21410.4.1. Methodology for calculating the value of in-time deliveries . . . . 21410.4.2. Case study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 220

10.5. Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22210.6. Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 223

Chapter 11. Supplier Relationship Management in Machine Tool Industry 225Günther SCHUH, Thomas Jasinski, Anja NESTLER, Roberto PINTO,Marco TAISCH and Arkaitz URIARTE

11.1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22511.2. Control loop of supplier relationship management . . . . . . . . . . . . 22611.2.1. Elements of the SRM control loop . . . . . . . . . . . . . . . . . . . 22611.2.2. Inputs and outputs relevant for the control loop . . . . . . . . . . . 229

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11.3. Order management processes in non-hierarchicalproduction networks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23111.3.1. Order management, production planning and scheduling . . . . . 23111.3.2. Order execution reference processes and inter-companyinterfaces in the machine tool and equipment industry. . . . . . . . . . . . 232

11.4. Performance evaluation indicators . . . . . . . . . . . . . . . . . . . . . 23611.4.1. The KPIs framework in the SRM context . . . . . . . . . . . . . . . 238

11.5. Improving supplier’s delivery reliability through incentives . . . . . . 23911.5.1. Incentive in the European machine tool industry . . . . . . . . . . 24011.5.2. A methodology for supplier incentive in machine tool industry. . 241

11.6. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24511.7. Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246

Chapter 12. Sustainable Mass Customization Assessment . . . . . . . . . . . 249Andrea BETTONI, Donatella CORTI, Alessandro FONTANA,Mahnoosh ZEBARDAST and Paolo PEDRAZZOLI

12.1. The need to assess sustainable mass customization . . . . . . . . . . . 24912.2. Key assumptions for the model development . . . . . . . . . . . . . . . 25112.2.1. Lifecycle perspective . . . . . . . . . . . . . . . . . . . . . . . . . . . 25212.2.2. Unit of analysis: the solution space . . . . . . . . . . . . . . . . . . 253

12.3. The assessment framework . . . . . . . . . . . . . . . . . . . . . . . . . . 25412.3.1. The S-MC-S indicators . . . . . . . . . . . . . . . . . . . . . . . . . . 25512.3.2. The assessment framework . . . . . . . . . . . . . . . . . . . . . . . 263

12.4. One tool, several applications . . . . . . . . . . . . . . . . . . . . . . . . 26812.5. How to implement the assessment model . . . . . . . . . . . . . . . . . 27112.6. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27412.7. Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27412.8. Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275

Part 3. Operational . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277

Chapter 13. A Decision Reference Model for Non-hierarchicalNetworks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 279Marc ZOLGHADRI, Claudia ECKERT, Xin ZHANG and Yan LIU

13.1. Modeling and supporting decision-making in anon-hierarchical network . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27913.2. Basic concepts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28213.2.1. Non-hierarchical networks. . . . . . . . . . . . . . . . . . . . . . . . 28213.2.2. Exchanging operational, tactical and strategic data . . . . . . . . . 284

13.3. GRAI modeling background . . . . . . . . . . . . . . . . . . . . . . . . . 28613.4. GRAI-Project . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28813.4.1. Existing limits of GRAI-Manufacturing modeling techniques. . . 288

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13.4.2. Product development: the GRAI-Project . . . . . . . . . . . . . . . 28813.4.3. Data exchange mapping . . . . . . . . . . . . . . . . . . . . . . . . . 29313.4.4. The non-hierarchical decision-making reference model . . . . . . 29513.4.5. Methodology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 297

13.5. Illustrative case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29813.5.1. The firm: Belgium Electronics . . . . . . . . . . . . . . . . . . . . . 29813.5.2. Objectives and problems of the enterprise . . . . . . . . . . . . . . 30113.5.3. Application of the methodology . . . . . . . . . . . . . . . . . . . . 30113.5.4. An example of interviews: Chief Executive Officer Mr. ThomasRoberts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 303

13.6. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30513.7. Acknowledgment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30613.8. Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 310

Chapter 14. Evaluation of Collaborative Processes . . . . . . . . . . . . . . . 313Bernd SCHOLZ-REITER, Daniel RIPPEL and Christian MEINECKE

14.1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31314.2. Collaborative processes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31414.3. Requirements on information exchanges in non-hierarchicalsupply networks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31614.4. Existing methods to evaluate collaborations in supply networks. . . . 31714.5. Evaluation of the suitability of software tools incollaborative processes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32014.5.1. Evaluation scenario preparation . . . . . . . . . . . . . . . . . . . . 32014.5.2. Evaluation workshops . . . . . . . . . . . . . . . . . . . . . . . . . . 32114.5.3. Interpretation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324

14.6. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32414.7. Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32514.8. Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 325

Chapter 15. Performance Measurement . . . . . . . . . . . . . . . . . . . . . . 329Pedro S. FERREIRA, Pedro F. CUNHA, Luís MAIA CARNEIRO and César TOSCANO

15.1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32915.2. Performance measurement in the Net-Challenge’s framework forperformance management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33115.3. Supporting the strategy execution in collaborative networks . . . . . . 33215.3.1. Strategy deployment – the performance factors . . . . . . . . . . . 33215.3.2. Collaboration: a key performance factor . . . . . . . . . . . . . . . 335

15.4. Performance measurement process . . . . . . . . . . . . . . . . . . . . . 33715.4.1. Definition of what to measure and targets setting . . . . . . . . . . 338

xii Intelligent Non-hierarchical Manufacturing Networks

15.4.2. Setup of a measurement system. . . . . . . . . . . . . . . . . . . . . 34015.4.3. Measurement and analysis of performance . . . . . . . . . . . . . . 341

15.5. ICT platform to support performance management . . . . . . . . . . . 34215.5.1. Performance management system setup . . . . . . . . . . . . . . . . 34315.5.2 Data collection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34315.5.3. Review performance . . . . . . . . . . . . . . . . . . . . . . . . . . . 344

15.6. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34515.7. Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34615.8. Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346

Chapter 16. Event Monitoring and Management Processin a Non-hierarchical Business Network . . . . . . . . . . . . . . . . . . . . . . 349A.H.M. SHAMSUZZOHA, Sami RINTALA, Pedro F. CUNHA,Pedro S. FERREIRA, Timo KANKAANPÄÄ, Luis MAIA CARNEIRO

16.1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34916.2. Literature review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35116.3. Event monitoring and management: perspectives frombusiness network . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35316.4. Types of events in networked business . . . . . . . . . . . . . . . . . . . 35416.5. Collaborative event monitoring and management: anontology-based approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35616.5.1. Event monitoring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35716.5.2. Event management . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358

16.6. Collaborative event monitoring and management: a case example . . 36516.7. Discussion and conclusions . . . . . . . . . . . . . . . . . . . . . . . . . 36816.8. Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36916.9. Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 370

Chapter 17. Extended Business Processes Execution . . . . . . . . . . . . . . 375Rubén Dario FRANCO and Rubén de JUAN-MARÍN

17.1. Resilient networks and extended business processes execution . . . . 37517.2. Achieving extended business processes modeling and execution . . . 37617.2.1. Interoperability concerns in resilient networks . . . . . . . . . . . . 37717.2.2. Moving from business process modeling to execution in ColNet . 379

17.3. ColNet approach and solution . . . . . . . . . . . . . . . . . . . . . . . . 38017.3.1. ColNet general approach. . . . . . . . . . . . . . . . . . . . . . . . . 38017.3.2. ColNet functional perspective. . . . . . . . . . . . . . . . . . . . . . 38217.3.3. ColNet technical description . . . . . . . . . . . . . . . . . . . . . . 38317.3.4. ColNet roles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 385

Table of Contents xiii

17.4. Application example. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38617.4.1. Ecosystem configuration and management . . . . . . . . . . . . . . 38617.4.2. Supporting Gheprix network lifecycle . . . . . . . . . . . . . . . . . 389

17.5. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39317.6. Acknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39317.7. Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 394

Chapter 18. Standardization in IT-Based Procurement inNon-hierarchical Networks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 395Jürgen NEISES, Anja NESTLER, Roberto PINTO, Itziar RICONDO, Marco TAISCH andArkaitz URIARTE

18.1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39518.2. IT-based procurement in machine tool industry. . . . . . . . . . . . . . 39618.2.1. IT solutions for the coordination of order transaction processes . 39618.2.2. Implementation level of IT-based procurement inmachine tool industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 399

18.3. Necessity of standards for secure communication innon-hierarchical networks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40018.3.1. Characteristics of non-hierarchical manufacturing networks. . . . 40118.3.2. Standards in secure electronic communication . . . . . . . . . . . . 402

18.4. Secure messaging and archiving in non-hierarchicalproduction networks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40418.4.1. Generic security issues in electronic business processes . . . . . . 40418.4.2. Storage issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 407

18.5. Electronic data interchange. . . . . . . . . . . . . . . . . . . . . . . . . . 40818.5.1. EDI: legally binding communication in anon-hierarchical production network . . . . . . . . . . . . . . . . . . . . . . 40918.5.2. Structure of the EDI agreement . . . . . . . . . . . . . . . . . . . . . 41118.5.3. Checklist technical annex . . . . . . . . . . . . . . . . . . . . . . . . 41118.5.4. Simple multilateral EDI in non-hierarchical networks . . . . . . . 412

18.6. Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41318.7. Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 415

List of Authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 419

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 423

Preface

In the new global market, competitiveness and growth of industry highly rely onthe move toward innovative high-performance industrial systems and agilenetworked enterprises through the creation and consolidation of non-hierarchicalmanufacturing networks of multinational small- and medium-sized enterprises(SMEs), faced with networks based on powerful large-scale companies. Thenetwork performance can be significantly improved through more harmonious andequitable peer-to-peer inter-enterprise relationships, conforming decentralized andcollaborative decision-making models.

The traditional hierarchical manufacturing networks are based on centralizedmodels, where some of the involved actors must adapt themselves to the constraintsdefined by the dominant ones. Real-world experiences of such models have revealedsome major problems due to the centralized vision of the supply chain and the sub-optimal performance of the centralized decision-making. For current highly dynamicmarkets, this generates major inefficiencies in the operation of the whole supplychain.

This book collects the latest research about non-hierarchical manufacturingnetworks and provides enterprises with valuable models, methods and guidelines toimprove its competitiveness. It presents a framework for collaboration in non-hierarchical manufacturing networks context at three decision levels: strategic(network design and network development), tactical (partners qualification andselection and performance management) and operational (support decision-makingand performance measurement).

We are confident that the contents of this book will help enterprises to achievemajor benefits in terms of enhanced overall competitiveness, innovation andadaptability in today’s and tomorrow’s enterprise partnership scenarios; cross-country and inter-enterprise interchanges, building networked enterprises that are

xvi Intelligent Non-hierarchical Manufacturing Networks

supported by stable relationship schemas and modern cooperation and coordinationbusiness paradigms; cost reduction, through overall optimization and elimination ofinefficiencies of processes, stocks, flows, plans, etc.; optimization of materials,wastes and energy consumption based on more rational and homogeneousproduction and supply plans, stocks and workforce balance.

This book is the main result of the IMS (www.ims.org) MTP initiative“Intelligent Non-Hierarchical Manufacturing Networks” (iNet-IMS) (www.inet-ims.net) that has combined the main results of five FP7 Research Projects(REMPLANET, CONVERGE, Net-Challenge, inTime and SMCS) recentlyfinalized. The first four projects are the only ones that were funded under the Call“FP7-NMP-2008-SMALL-2” activity code “NMP-2008-3.3-1: Supply chainintegration and real-time decision-making in non-hierarchical manufacturingnetworks”; therefore its combined results are highly valuable since it covers all theresearch performed in such areas in Europe during the past three years.

Raul POLERLuis MAIA CARNEIRO

Thomas JASINSKIMarc ZOLGHADRIPaolo PEDRAZZOLINovember 2012

PART 1

Strategic

Chapter 1

Mass Customization as an Enablerof Network Resilience

1.1. Introduction

In 1954 Drucker stated that “[i]t is the customer who determines what a businessis” [DRU 54, p. 37]. As this statement clearly shows, the competitiveness of manycompanies depends strongly on the firm’s ability to manage its supply chains inaccordance with the customers’ preferences. In times of globalization, today’sindustry often encounters an uninterrupted trend toward heterogeneity of customerdemand. This trend has many causes a changing demographic structure, a growingnumber of single-households, an orientation toward design and a new awareness ofquality and functionality that demands durable and reliable products correspondingexactly to the specific needs of the purchaser [ZUB 03, AND 07, FRA 09]. Owing tothis heterogeneity in customer demand, manufacturers are forced to create productportfolios with an ever increasing number of product variants, but with rather low lotsizes at the same time.

Besides these changes in customer demands, the manufacturers themselves andtheir production processes have changed dramatically over time. Manufacturerstoday often serve customers all around the globe and thus have established globaldistribution networks to reach new customers. Furthermore, they tend to focus ontheir core competencies and outsource other production steps to their suppliers[PRA 90]. Particularly in today’s highly competitive business environment,

Chapter written by Frank T. PILLER and Frank STEINER.

4 Intelligent Non-hierarchical Manufacturing Networks

activities for serving customers within the production network have to be performedboth efficiently and effectively – they have to be organized around a customer-centric supply and demand chain. Yet despite all the technological advances, this isby no means a straightforward task.

Since the early 1990s, mass customization has emerged as one leading idea forachieving precisely this objective. Mass customization is defined as “developing,producing, marketing, and delivering affordable goods and services with enoughvariety and customization that nearly everyone finds exactly what they want”[PIN 93a, p. 44]. In other words, the goal is to provide customers what they wantand when they want it. Hence, companies offering mass customization are becomingcustomer-centric enterprises [TSE 03b], organizing all of their value creationactivities during interaction with individual customers. In consequence, masscustomization has to be regarded as a business paradigm that has the potential to addvalue by directly addressing customer needs and in the meantime utilizing resourcesefficiently without incurring excessive cost. This is particularly important at a timewhere competition is no longer just based on price and the conformance ofdimensional quality.

However, the implementation of such a mass customization strategy is quitecomplex, as it requires customer centricity in all stages of the value chain.Companies need to gain specific, strategic capabilities in order to implement masscustomization successfully. This chapter will describe how the concept of masscustomization could be applied across global supply networks in order to enablenetwork resilience.

1.2. The increasing importance of customer-centric manufacturing networks

The idea of a customer-centric enterprise and customer-centric supply chains isto focus all company and supply chain operations on serving customers anddelivering unique value by treating customers as individuals [SHE 00, TSE 03b,PIL 06]. To offer a better understanding of the specifics of customer centricity, thissection will briefly review the role of customer centricity in supply chains andmanufacturing networks.

In the area of supplier relations and business-to-business-transactions, we cantoday discern that the dominating form of organization for carrying out valuecreation processes is represented by networks The supplier networks in today’sautomobile industry are a suitable example for this trend. In order to differentiatethemselves more efficiently from their competitors, many companies todayconcentrate on their core competencies – or, the areas in which they have a high

Mass Customization as an Enabler of Network Resilience 5

level of competence in fulfilling customer needs [PRA 90]. However, this alsomeans that all activities not belonging to a company’s core competencies areoutsourced to external suppliers, who can deliver using the advantages ofspecialization (production based upon economies of scale and scope). Verticalpartnerships along the supply chain (integration of suppliers in manufacturingprocesses), as well as horizontal partnerships in distribution (e.g. sales cooperation)result. These topics have been comprehensively discussed in literature [FRO 01,GHO 95,HAY 84, PIC 94, PIC 03, ZAH 02].

Customer centricity combines the organizational perspective of customerorientation with the individual perspective of relationship management [TSE 03b,PIL 06]. It also extends the responsibility of dealing with customers from solelythe marketing function to the entire organization. Customer centricity means thatthe organization as a whole is committed to meeting the needs of all relevantcustomers. At the strategic level, this translates to the orientation and mindset of afirm toward sharing interdependencies and values with customers over the longterm. At the operational level, companies have to align their processes with thecustomers’ convenience, instead of focusing on the convenience of operations. Ofcourse, sufficient infrastructural systems and leadership structures have to beimplemented to achieve this state. These changes include a customer-centricorganizational structure. Traditionally, separated functions such as sales,marketing (communications) and customer service will be integrated into onecustomer-centered activity [SHE 00]. Further, customer centricity is switching themarketing perspective from the demand side to the supply side [PIL 05].Marketing management has traditionally been viewed as demand management.The focus has been on the product or the market, and marketing has had tostimulate demand for an offering through promotional activities such as incentivesor pricing policies. The customer-centric enterprise is switching its focus to theindividual customer as the starting point for all activities. Instead of creating andstabilizing demand, that is trying to influence people in terms of what to buy,when to buy and how much to buy, firms should try to adjust their capabilitiesincluding product design, production, sales and supply chain design to respond tocustomer demand.

Mass customization can be seen as a way of thinking for companies to achievethese goals of customer centricity, both with regard to marketing and sales as well asto operations and supply chain management. Therefore, the following chapter willbriefly introduce the concept of mass customization and describe a set oforganizational capabilities that are necessary for a successful implementation ofmass customization within a manufacturing network.


1.3. Mass customization: providing an organizational structure for resilientmanufacturing networks

From a strategic management perspective, mass customization is adifferentiation strategy. Referring to Chamberlin’s [CHA 62] theory of monopolisticcompetition, customers gain the increment of utility of a customized good that betterfits their needs than the best standardized product attainable would. The larger theheterogeneity of all customers’ preferences, the larger is the gain in utility[KAP 07].

Davis, who initially coined the term in 1987, refers to mass customization when“the same large number of customers can be reached as in mass markets of theindustrial economy, and simultaneously […] be treated individually as in thecustomized markets of pre-industrial economies” [DAV 87, p. 169]. Pine definedmass customization as “developing, producing, marketing and delivering affordablegoods and services with enough variety and customization that nearly everyonefinds exactly what they want” [PIN 93a, p. 44]. This definition clearly highlights theidea of customization. Every individual customer should be able to find productsand services that exactly fit his needs. This concept is based on the idea that everycustomer envisions an “ideal product”, which will be used as a benchmark for allproducts that are available on the market. In consequence, customers will mostlikely choose the one product that is closest to their “ideal product”. Research hasshown that this “distance” between an available product and the respective idealproduct can be regarded as an indicator for the value that a customer perceives in aproduct; the better a product fits the customer’s needs, the higher will be thewillingness of this customer to pay [FRA 04, PIL 04]. Subsequently, customizing aproduct to the needs of individual customers might lead to increased revenues.

However, companies can only benefit from this increase in revenues, if the costof providing the customized goods does not increase even more than the revenues.This notion is captured better in the definition by Tseng et al. [TSE 96]. They definemass customization as a business strategy that “[…] aims at best satisfyingcustomers’ individual needs with near mass production efficiency” [ZHA 07]. Thedefinition clarifies that companies can only benefit from mass customization, if theyprovide their customized products in an efficient manner. This aspect is crucial forthe idea of mass customization, as the process of delivering products that fitindividual customers’ needs can be described with the word “customization” only.

However, to reap the benefits of mass customization, managers must not think ofit as a stand-alone business strategy for replacing production and distributionprocesses, but as a set of organizational capabilities that can enrich the portfolio ofcapabilities of their organizations. Mass customization means to profit from the factthat all people are different, that is, turning heterogeneities in the customer domain


into an opportunity to create value, rather than a problem to be minimized,challenging the “one-size-fits-all” assumption of traditional mass production.

Companies that master the proposition of mass customization successfully havebuilt competences around a set of core capabilities. The key to profiting from masscustomization is to regard it as a set of organizational capabilities that cansupplement and enrich an existing system. While specific answers on the nature andcharacteristics of these capabilities are clearly dependent on industry context orproduct characteristics, research has shown that three fundamental groups ofcapabilities determine the ability of a firm to mass customize: solution spacedevelopment, robust process design and choice navigation [SAL 08, SAL 09]. Thesecapabilities are briefly introduced in the following:

– Solution space development: First, a company seeking to adopt masscustomization has to be able to understand the idiosyncratic needs of its customers.This is in contrast to the approach of a mass producer, where the company focuseson identifying “central tendencies” among its customers’ needs, and targets themwith a limited number of standard products. Conversely, a mass customizer has toidentify the product attributes along which customer needs diverge the most. Oncethis is understood, the firm knows what is required to properly cover the needs of itscustomers. Consequently, it can draw up the so-called solution space, clearlydefining what it is going to offer and what it is not.

– Robust process design: A second critical requirement for mass customization isrelated to the relative performance of the supply chain. Specifically, it is crucial thatthe increased variability in customers’ requirements does not lead to significantdeterioration in the firm’s operations and supply chain [PIN 93b]. This demands arobust supply chain design – defined as the capability to reuse or recombine existingorganizational and supply chain resources to fulfill differentiated customers’ needs.With robust process design, customized solutions can be delivered with near massproduction efficiency and reliability.

– Choice navigation: Finally, the firm must be able to support customers inidentifying their own problems and solutions, while minimizing complexity andburden of choice. When a customer is exposed to too many choices, the cognitivecost of evaluation can easily outweigh the increased utility from having morechoices [HUF 98, PIL 05]. As such, offering more product choices can easilyprompt customers to postpone or suspend their buying decisions. Therefore, thethird requirement is the organizational capability to simplify the navigation of thecompany’s product assortment from the customers’ perspective.

In the following, the three fundamental capabilities of mass customization willbe presented in greater detail.


1.3.1. Solution space development

A mass customizer must first identify the idiosyncratic needs of its customers,specifically, the product attributes along which customer needs diverge the most.This is in stark contrast to a mass producer, which must focus on serving universalneeds, ideally shared by all the target customers. Once that information is knownand understood, a business can define its “solution space”, clearly delineating whatit will offer and what it will not. This space determines what universe of benefits anoffer is intended to provide to customers and then within that universe what specificpermutations of functionality can be provided [PIN 95].

1.3.1.1. Options for customization

From the perspective of product development, customization can create value viathree design features of a product (or service), any of which can become the startingpoint for customization: the fit (measurements), the functionality and the form (styleand esthetic design) of an offering [PIL 05]. These are generic dimensions thatmatch the demand of a customer toward an offering. Along those dimensions,heterogeneities of demand from a customer perspective can be derived. The solutionspace should represent choice options for those dimensions where customerheterogeneities matter in a particular case.

– Fit and comfort (measurements): The traditional starting point for customizationin consumer good markets is to fit a product according to the measurements providedby the client, for example body measurements or the dimensions of a room or otherphysical objects. Market research identifies a better fit as one of the strongestarguments in favor of mass customization [BOE 07]. Often, however, it is also one ofthe most difficult dimensions to achieve, demanding complex systems to gather thecustomers’ proportions exactly and to transfer them into a product that has to bebased on a parametric design (for fulfilling the requirements of a stable solutionspace). This often calls for a total redesign of the product and the costly developmentof flexible product architectures with enough slack to accommodate all possiblefitting demands of the customer base. In sales, expensive 3D scanners or otherdevices are needed, which in turn demands highly qualified sales staff for theiroperation [BER 05].

– Functionality: Functionality addresses issues such as speed selection, precision,power, cushioning, output devices, interfaces, connectivity, upgradeability or similartechnical attributes of an offering according to the requirements of the client. This isthe traditional starting point for customization in industrial markets, where machines,for example, are adjusted to fit in with an existing manufacturing system, orcomponents are produced according to the exact specifications of their buyers.Functionality demands similar efforts to elicit customer information about the desiredindividual functionality as the fit dimension. In manufacturing, however, the growing


software content of many products today enables the customizability of functionalcomponents more easily.

– Form (style and esthetic design): This dimension relates to modificationsaiming at the sensual or the visual senses, that is selecting colors, styles,applications, cuts or ideas. Many mass customization offerings in business-to-consumer e-commerce are based on the possibility of codesigning the outerappearance of a product. This kind of customization is often rather easy toimplement in manufacturing, particularly if digital printing technology can beapplied. The desire for a particular outer appearance is often inspired by fashions,peers, role models, etc., and the individual’s desire is to copy and adopt these trends.Along this line, the construct of consumers’ need for uniqueness has been discussedin the psychological marketing literature [TEP 01]. Consumers acquire and displaymaterial possessions for the purpose of feeling differently from other people or theyperform explicit actions in order to be recognized by others (counter-conformitymotivation). Some consumers express their desire for uniqueness by selectingmaterial objects (fashion) that are ahead of the average trend, by purchasing hand-crafted items, or vintage goods from non-traditional outlets. Mass customization canbe a further means to express their uniqueness, where consumers can designproducts according to their own personal specifications in order to look differentfrom others.

1.3.1.2.Methods for solution space definition

To define the solution space, the company has to identify those needs wherecustomers are different – and where they care about these differences. Matching theoptions represented by the solution space with the needs of the targeted marketsegment is a major success factor of mass customization [HVM 08]. The corerequirement at this stage is to access “customer need information”, that isinformation about preferences, needs, desires, satisfaction, motives, etc. of thecustomers and users of the product or service offering. Need information builds onan in-depth understanding and appreciation of the customers’ requirements,operations and systems. Spotting untapped differences across customers is not aneasy task, because information about customers’ unfulfilled needs is “sticky”, that isdifficult to access and codify for the solutions provider [VON 98]. While thisproblem is shared by both mass producers and mass customizers, it is moredemanding for the latter, because of the extreme fragmentation of customers’preferences. Understanding heterogeneous customer needs in terms of identifyingdifferentiating attributes, validating product concepts and collecting customerfeedback can be a costly and complex endeavor, but several approaches can help.

– Conventional market research: The first approach is to engage in conventionalmarket research techniques, that is, to meticulously gather data from representativecustomers in a chosen market sector. To reduce the risk of failure, need-related


information from customers is integrated iteratively at many points in the newproduct development process (for example, [GRI 93, DEL 09]). The manufacturerselects and surveys a group of customers to obtain information on needs for newproducts, data analyses, develops a responsive product idea and screens this ideaagainst customer preferences (needs) and purchasing decisions. This model isdominating, especially in the world of consumer goods, where market researchmethodology such as focus groups, conjoint analysis, customer surveys and analysesof customer complaints is used regularly to identify and evaluate customer needsand desires. In particular, conjoint analysis, also called multi-attribute compositionalmodels, can be regarded as a tool suited to define a company’s solution space in amass customization environment. The term denotes a set of methods to measure andanalyze consumers’ preferences by assessing their perception of the value of variousattributes of a product [GRE 81, GRE 90, LOU 94]. The method is based on anexperimental design that allows for systematically manipulating product or servicedescriptions shown to a respondent. This method is efficient in the sense that thesurvey does not need to be conducted using every possible combination of attributes.The utilities can be determined using a subset of possible attribute combinations.From these results, one can predict the desirability of the combinations that were nottested [GRE 81].

– Toolkits for user cocreation: A second approach companies can use to definetheir solution space is to provide customers with toolkits for user cocreation[VON 02, FRA 04]. These are software design tools such as a computer-aideddesign (CAD) system, but with an easy-to-use interface and a library of basicmodules and functionalities. With these toolkits, customers can, by themselves,translate their preferences directly into a product design, highlighting unsatisfiedneeds during the process. The resulting information can then be evaluated andpotentially incorporated by the company into its solution space. When Fiat wasdeveloping its retro, award-winning Fiat 500, for example the automaker createdConcept Lab, an innovation toolkit that enabled customers to freely express theirpreferences regarding the interior of the car long before the first vehicle had beenbuilt. The company received more than 160,000 designs from customers – aproduct-development effort that no automaker could replicate internally. And Fiatallowed people to comment on others’ submissions, providing a first evaluation ofthose ideas. Of course, mass producers can also benefit from innovation toolkits, butthe technology is particularly useful for mass customization, because it can be usedat a low cost for large pools of heterogeneous customers.

– Customer experience intelligence: Third, in developing their solution space,companies can employ some form of “customer experience intelligence”, that is, toapply methods for continuously collecting data on customer transactions, behaviorsor experiences, and analyzing that information to determine customer preferences.This also includes incorporating data not just from customers, but also from people


who might have taken their business elsewhere. Consider, for example, informationabout products that someone has evaluated, but did not order. Such data can beobtained from log files generated by the browsing behavior of people using onlineconfigurators [RAN 03, SQU 04, PIL 04]. By systematically analyzing thatinformation, managers can learn much about customer preferences, ultimatelyleading to a refined solution space. A company could, for instance, eliminate optionsthat are rarely explored or selected, and it could add more choices for the popularcomponents. In addition, customer feedback can even be used to improve the veryalgorithms that a particular application uses. When someone skips a song thatPandora Radio has suggested, for example, that information is not just used toprovide better personalization of the music stream for that particular individual. It isalso aggregated with similar feedback from millions of other customers to preventthe system from making that kind of incorrect recommendation in the future.

1.3.2. Robust process design

A core idea of mass customization is to ensure that an increased variability incustomers’ requirements will not significantly impair the firm’s operations andsupply chain [PIN 93b]. This can be achieved through robust process design – thecapability to reuse or recombine existing organizational and supply chain resourcesto deliver customized solutions with high efficiency and reliability. Hence, asuccessful mass customization system is characterized by stable, but still flexible,responsive processes that provide a dynamic flow of products [PIN 95, TU 01,SAL 04, BAD 07]. Value creation within robust processes is the majordifferentiation of mass customization versus conventional (craft) customization.Traditional (craft) customizers reinvent not only their products, but also theirprocesses for each individual customer. Mass customizers use stable processes todeliver high-variety goods [PIN 93b], which allows them to achieve “near massproduction efficiency”, but it also implies that the customization options aresomehow limited. Customers are being served within a list of predefined options orcomponents, the company’s solution space.

1.3.2.1. Cost drivers of variety

The core objective of robust process design is to prevent or counterbalance theadditional cost resulting from the flexibility a company needs to achieve in order toserve its customers individually. We can differentiate two sources of the additionalcost of flexibility [SU 05]: 1) increased complexity and 2) increased uncertainty inbusiness operations, which by implication results in higher operational cost. Ahigher level of product customization requires greater product variety, which in turnentails a greater number of parts, processes, suppliers, retailers and distributionchannels. A direct consequence of such proliferations is an increased complexity in


managing all aspects of business from raw material procurement to production andeventually to distribution. Furthermore, an increase in product variety has the effectof introducing greater uncertainty in demand, increases in manufacturing cycle timesand increases in shipment lead times [KUM 06, YAO 07]. Increased systemcomplexity and uncertainties (in demand and lead time) drive the operational costupward due to more complex planning, greater hedging, increased resource usage,more complex production setups, diseconomies of scope and a higher distributioncost spread throughout the supply chain. Finally, a sizeable increase in costs to offerchoice navigation for customers is integral to a mass customization strategy. Thisincludes, for example, implementing a configuration system on a Website or in aphysical store.

1.3.2.2. Methods to establish robust processes

The most important aspect of robust process design is the outcome of anmanufacturing process that allows for an efficiency that is comparable to that ofmass customization, despite an increasing product variety. For this purpose,literature suggests a number of different methods that can be employed to reduce oreven avoid the additional costs of variety. In the following, several options will bediscussed:

– Postponement: A primary mechanism to create robust processes in masscustomization is the application of delayed product differentiation (postponement).Delayed product differentiation refers to partitioning the supply chain into twostages [YAN 03, YAN 04]. A standardized portion of the product is produced duringthe first stage, while the differentiated portion of the product is produced in thesecond stage, based on customer preferences that have been expressed in an order.The success of delayed product differentiation is a direct manifestation of the factthat most companies offer a portfolio of products that consists of families of closelyrelated products, which differ from each other in a limited number of differentiatedfeatures. An example of delayed product differentiation in the automotive industrywould be to send a standard version of the car (a stripped or partially equippedversion) to dealers and then allow the dealer to install, on the basis of customer-specific requests, options such as a CD/DVD player, the interior leather or fabricand the cruise control system, etc. Prior to the point of differentiation, product partsare reengineered so that as many parts or components of the products as possible arecommon to each configuration. Cost savings result from the risk-pooling effect andreduction in inventory stocking costs [YAN 04]. In addition, as commonperformance levels of functionalities are selected by a number of customers,economies of scale can be achieved at the modular level for each version of themodule, generating cost savings not available in pure customization-orientedproduction systems.

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