Read the article “Mass Customization at Hewlett-Packard: The Power of Postponement” and answer the questions below.
What is the difference between Customization and Mass customization? Explain.
How would you design the product and the process to enable Mass Customization? Explain with examples.
Can mass customization be applied in the context of a Service? Explain with examples.
Response should be detailed; length of your response – minimum 1 page; single spaced. You should not be copying and pasting sentences from the article. Understand the concepts from the article and provide responses in your own words.
If you use terms such as “modular” or “postponement” in your response, you should clearly explain what they mean.
Provide your response in a Word document and upload it on Canvas. Include your name in the document and also in the file name.Mass Customization at
The Power of Postponement
by Edward Feitzinger and Hau L. Lee
Harvard Business Review
Reprint 97101
Mass Customization at
In many mass markets, companies are
facing a predicament. On the one hand, customers are demanding that their orders be fulfilled
ever more quickly. On the other hand, they are demanding highly customized products and services.
Even without trying to customize their products,
most companies have found it difficult to fulfill orders swiftly and at an acceptable cost. Is it possible,
then, to mass-customize products, deliver them
rapidly, and at the same time reduce costs?
The Hewlett-Packard Company has confronted
these pressures in many of its businesses, including computers, printers, and medical products. It
has proved that companies indeed can deliver customized products quickly and at a low cost. Some
by Edward Feitzinger and Hau L. Lee
companies in such industries as apparel, paint, and
consumer electronics have had similar success:
they have dramatically increased their product variety, slashed the time they require to fulfill customers’ orders, and reduced costs. Other companies
have not: they have mass-customized only to see
their costs soar out of control.
The key to mass-customizing effectively is postponing the task of differentiating a product for a
specific customer until the latest possible point in
the supply network (a company’s supply, manufacturing, and distribution chain). Instead of taking
a piecemeal approach, companies must rethink and
Copyright © 1996 by the President and Fellows of Harvard College. All rights reserved.
integrate the designs of their products, the processes
used to make and
deliver those products, and the configuration of the entire supply network. By
adopting such a comprehensive approach,
companies can operate at maximum efficiency and quickly meet customers’ orders
with a minimum amount of inventory.
Three organizational-design principles
together form the basic building blocks of
an effective mass-customization program:
A product should be designed so it consists of independent modules that can be assembled into different forms of the product easily and inexpensively.
Manufacturing processes should be designed so
that they, too, consist of independent modules that
can be moved or rearranged easily to support different distribution-network designs.
The supply network – the positioning of inventory and the location, number, and structure of manufacturing and distribution facilities – should be designed to provide two capabilities. First, it must be
able to supply the basic product to the facilities performing the customization in a cost-effective manner. Second, it must have the flexibility and the responsiveness to take individual customers’ orders
and deliver the finished, customized goods quickly.
Modular Product Design
A product with a modular design provides a supply network with the flexibility that it requires to
customize a product quickly and inexpensively.
ture different modules at the same time, which
significantly shortens the total time required for
production. Third, a company can more easily diagnose production problems and isolate potential
quality problems.
Consider a component that is not standardized: a
dedicated power supply, or a power supply that cannot automatically convert voltage. In the global
electronics market, building a dedicated power supply into a product in the first stages of production
forces a manufacturer to commit to the product’s
country of destination. If a company has a long production process or delivery time from factory to
end consumer, having this kind of power supply
makes it difficult to mass-customize efficiently.
But a company could standardize components, designing or purchasing a single power supply that
would work across an entire product family or, ideally, across many product families. Alternatively,
the company could postpone the assembly of the
power supply until a later point in the production
process. Either approach would result in greater
flexibility and lower costs.
HP has successfully implemented a standardization strategy for the LaserJet printer that it sells
in Europe and North America. A partner in Japan
makes the printer’s core engine, which then is
shipped by sea to the two markets. Before HP and
its partner designed the LaserJet for mass customization, the printer had a dedicated power supply of 110 volts and 220 volts, which forced the
company to differentiate it by end-customer market as soon as production began in Japan. Under the
improved design, a power supply that works in all
countries is built into the product. This universal
power supply allows HP to ship products
from one continent to another when a significant imbalance of supply and demand
exists between the two regions. As a result
The Power of Postponement
Such a design
separates the
of end products into parts or subassemblies, some of which are
common to all product options, others of which are
not. A modular product design has three benefits.
First, a company can maximize the number of standard components it uses in all forms of the product,
assemble those components for all product options
in the earlier stages of the assembly process, and
postpone the addition of the components that differentiate the product until the later stages of the
process. Second, a company can make the modules
of the product separately; in fact, it can manufacHARVARD BUSINESS REVIEW
January-February 1997
of standardizing the LaserJet, HP was able to reduce the total costs of manufacturing, stocking,
and delivering the finished product to the customer
by 5% per year.
Edward Feitzinger is a process-technology manager at
the Hewlett-Packard Company’s strategic planning and
modeling unit in Palo Alto, California. Hau L. Lee is a
professor of industrial engineering and engineering management and the director of the Stanford Global Supply Chain Management Center at Stanford University
in Palo Alto.
Customization Costs Drop with the
Generic DeskJet Printer
Factory inventory costs
Freight and duty costs
Distribution center and
transit inventory costs
Annual cost in
millions of dollars
Manufacturing costs
Distribution center
Where customization occurs
HP decided to take a different approach to customizing its DeskJet printers for the European and
Asian markets. The company opted to customize
the printers at its local distribution centers rather
than at its factories. For example, instead of customizing the DeskJets at its factory in Singapore
before shipping them to Europe, HP has its European distribution center near Stuttgart, Germany,
perform this job. The company therefore designed
the printer with a country-specific external power
supply that the customer plugs in when setting up
the printer. The distribution center not only customizes the product but also purchases the materials that differentiate it (the power supplies, packaging, and manuals). As a result of this redesign,
manufacturing costs are slightly higher than when
the factories customized the printers, but the total manufacturing, shipping, and inventory costs
dropped by 25%. (See the chart “Customization Costs Drop with the Generic DeskJet Printer.”)
Because the use of standardized
components to support mass customization may increase the cost
of materials, companies must carefully assess whether the benefits of
standardization outweigh the added
costs. HP learned that the value of common components depends on the uncertainty in product demand across its geographical markets, the lead time
to replenish its stocks of parts, the length of the
product’s life cycle, and the cost of shipping the finished product. As uncertainty, lead time, and inventory and stock-out costs increase, so do the benefits of standardization. HP found that forecasting
the mix of options that customers want is most difficult at the beginning and end of a product’s life
cycle. Shorter life cycles, in particular, increase uncertainty and thus the benefits of standardization.
Making decisions like these is not easy. It involves people from at least five areas of a company:
marketing, research and development, manufacturing, distribution, and finance. These five groups
must play the following roles to support an effective mass-customization program:
Marketing must determine the extent to which
mass customization is needed to fulfill customers’
Research and development must redesign the
product so that it can be customized at the most efficient point in the supply network.
Manufacturing and distribution must coordinate
both the supply and the redesign of materials and
situate manufacturing processes in the most efficient locations.
Finance must provide activity-based cost information and financial analyses of the alternatives.
Each group at any company has its own measures
of performance. At HP, marketing is evaluated on
revenue growth, R&D on a product’s functionality
and the cost of its components, and manufacturing
and distribution on the cost of assembling and delivering a product to the customer. The different
measures focus the groups on different objectives:
marketing wants to offer as many product options
as possible to attract more customers, R&D wants
to offer the product with the greatest possible functionality at the lowest possible cost, and manufacturing and distribution want to make one product
at a stable volume.
If the groups are not properly coordinated, their
attempts to optimize their own performance may
hurt the company’s ability to create the most effi-
Clashing priorities make
it hard to create the
most efficient supply network.
cient supply network that can deliver a customized
product at the lowest cost. Therefore, negotiations
among these groups are critical. At HP, the basis for
negotiations is an analysis of the supply network
that numerically represents all of the groups’ perspectives and comes up with the best result for the
company. In one instance, designers initially balked
at creating a generic DeskJet printer for both Mac
January-February 1997
Modular Process Design
Breaking down the production process into independent subprocesses provides companies with
the kind of flexibility that effective mass customization requires. Such an approach is based on
three principles: process postponement, process resequencing, and process standardization.
The way neighborhood hardware and paint stores
match paint colors on their premises is a good example of process postponement. Instead of making
a broad range of different paints to meet customers’
specific requirements, factories make generic paint
and a variety of color pigments, which hardware
and paint stores stock. The stores use a chromatograph to analyze a customer’s paint sample and to
determine the paint-and-pigment mixture that will
match it. This innovative process provides customers with a virtually unlimited number of consistent choices and, at the same time, significantly
reduces the inventory of paint that stores need to
stock in order to match every customer’s desired
color on demand. The key to postponement was
separating the paint-production process into two
subprocesses – the production of the paint and the
mixing of the pigment and paint – and creating a
low-cost chromatograph.
A modular process design also offers advantages
in the retail apparel industry. Most departmentstore outlets sell finished clothing with little or no
provision for customizing it to fit the customer’s
body and taste. Most cloth is dyed, cut, and sewn to
predetermined dimensions, making low-cost mass
customization difficult if not impossible. (Tailored
clothing is usually quite expensive.) An emerging
technology in the fashion industry, however, effectively splits the production process into two moduHARVARD BUSINESS REVIEW
January-February 1997
lar subprocesses: the body-measurement process
and the cut-and-sew process. A device uses computer and optical technology to take a customer’s
measurements at the store, much as a tailor does.
The computer then sends the measurements to the
clothing vendor, which cuts and sews the garment
within 48 hours. The result is a completely customized garment that costs about the same as an
off-the-shelf item.
Although the retail outlet has to buy and maintain the measuring device, it can significantly improve sales per square foot with the purchase. The
outlet needs to hold only samples of a specific garment instead of stock in all sizes and colors. And
end-of-season discounts that retailers have to offer
to clear out unsold goods become unnecessary. Given the fact that a clothing retailer typically obtains
full price for only 50% to 60% of its clothing inventory, eliminating such discounts can lead to a substantial improvement in profits. In addition, the
modular process design greatly reduces clothing
manufacturers’ inventory risks. Instead of stocking
high-cost finished goods that may or may not sell,
manufacturers can stock relatively low-cost raw
fabrics that are turned into finished products only
in response to actual orders.
Once a company has divided the overall operational process into modular subprocesses, it can
consider resequencing the subprocesses. Benetton
did just that in its sweater-manufacturing operations. Instead of first dyeing the yarn into different
colors and then knitting it into finished garments,
Benetton changed the order of the dyeing and knitting subprocesses. The company dyed the uncolored sweaters either when it received an order or
when it had a better idea of consumers’ color tastes
for that season. By rearranging the subprocesses,
Benetton effectively postponed the point of product
differentiation and thereby saved millions of dollars in charges for obsolete inventory.
Required Inventories Drop with the
Generic DeskJet Printer
Total weeks of inventory
at distribution centers
and DOS users, because doing so would add to the
cost of materials needed to make the product. (The
other option was continuing to produce two distinct ink-jet printers.) The division conducted an
analysis that compared a generic printer’s higher
cost of materials with its lower inventory costs. It
found that although the cost of materials would increase, required inventories would drop by 50%.
(See the chart “Required Inventories Drop with the
Generic DeskJet Printer.”) In addition, the generic
printer would enable computer resellers and retailers to stock one model instead of two. This last
benefit had a significant impact: a major retailer
elected to sell HP’s generic DeskJet in large part because servicing both Mac and DOS customers with
the same stock of printers would reduce inventory
costs, shelf space, and associated overhead.
Distinct Mac and
DOS printers
Generic printer
Standardizing earlier portions of the production
process and postponing differentiation help improve the flexibility of the supply network. Consider HP’s disk-drive division, which supplied AT&T,
NeXT, and HP with disk drives. It originally had
trouble matching supply with demand because its
customers often revised their orders at the last
minute, and its processes for testing disk drives
made it difficult to accommodate those revisions.
Under the old approach, the division inserted a
printed circuit board prior to the lengthy test
process. Each customer, however, usually required
a distinct circuit board. As a result, once a board
was inserted, the disk drive could be sold only to
that customer.
The division then found a way to conduct most of
the test process without inserting the final cus-
serve multiple regions – typically offer the advantage of low costs. Decentralized networks, however, often allow a business to offer customers
improved service. By rethinking the design of the
supply network when redesigning products and
processes for mass customization, a company can
optimize costs and provide fast, effective service.
For example, a company with many product options benefits little from having many distribution
centers around the world if those centers perform
only the tasks of warehousing and distribution. The
investments in inventory required to support all
the options would be enormous. The economics
change radically, however, if a company redesigns
its products and processes into modules so that the
final customization steps take place on receipt of a
customer’s order. It then becomes cost effective to
have more distribution centers, each
of which stocks basic products and
performs the final steps in the customization process.
In addition, having distribution
centers perform such light manufacturing can help a company both comply with the local-content rules that
are prevalent in emerging markets
and respond to customers who are
unwilling to wait six weeks for a customized product to be shipped from a factory in another region. In this way, a company enjoys the best
of both worlds: on the one hand, it can concentrate
its manufacturing of critical parts in a few sites
around the world so that it can achieve economies
of scale; on the other hand, it can maintain a local
manufacturing presence.
HP’s success in personal computers demonstrates the power of integrating the designs of products, processes, and supply networks. Today’s desktop personal computer is a highly customized
product – some manufacturers offer thousands of
different permutations to their customers. The PC
consists of industry-standard, pretested components. Its product design is among the most modular in the electronics industry. Its production
process also is extremely modular: a manufacturer
has many different choices of how and where to
build PCs.
Following the assembly and distribution models
that prevailed in the PC industry in 1994, most
manufacturers built product to stock. Problems associated with stocking the right mix of products to
match customers’ demands plagued the system; inventory write-offs and clearance sales to get rid of
products at the end of their model lives occurred
Hewlett-Packard’s distribution
centers can deliver highly
customized PCs more quickly and
cheaply than competitors can.
tomer-specific board. It separated the test process
into two subprocesses: the standard tests required
for all end products and the customized tests specific to individual end products. The division ran
all its disk drives through the standardized test
process, then stocked the generic units until an order arrived. When it received an order, it added the
circuit board that the customer required, performed
the customized tests, and shipped the product. By
successfully postponing the point of product differentiation, this approach greatly enhanced the division’s flexibility and substantially lowered its inventory costs. HP recently closed the division for
other business reasons, but it still considers the division’s use of postponement a best practice.
Agile Supply Networks
Determining the optimum number and location
of factories and distribution centers is a complex
decision. It requires balancing such factors as response time to a customer’s order, the marketing
value of maintaining a local manufacturing presence, local-content rules, duties, transportation
time and costs, local labor and occupancy costs, and
the replication of fixed assets. Centralized distribution networks – using one depot or warehouse to
January-February 1997
In early 1994, HP conducted an analysis of its PC
manufacturing and distribution strategies. Analysts discovered that the modular structure of the
product and the production process would allow
the company to postpone all steps of the PC’s final
assembly (integrating the PC board, processor,
chassis, power supply, storage devices, and software). HP’s distribution network then could build
the product in locations close to customers only in
response to their orders. In this way, the company
would save on transportation and duty costs and
greatly increase its return on assets. Abandoning its
previous practice of stocking finished goods or partially completed units, HP implemented a build-toorder approach at all its distribution centers in early
1995. A Compaq executive lamented in the trade
press that HP was “light-years ahead of the compe-
January-February 1997
tition” in its ability to deliver products quickly and
at a low cost. As a result of its new strategy, HP did
in fact deliver a highly customized product more
quickly and cheaply than its competitors could.
Many of the success stories we have described resulted from the collaborative efforts of manufacturing, engineering, distribution, and marketing organizations within and, in some cases, outside HP.
These successes show that mass customization
does not have to be a financially risky strategy. By
carefully applying the set of design principles we
have outlined, companies can mass-customize at a
low cost. They no longer have to choose between
satisfying their customers and increasing their profit margins.
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