A MODEL FOR PRODUCT, PROCESS AND SUPPLY CHAIN CONFIGURATION IN A BUILD-TO-ORDER ENVIRONMENT

Transcription

1 A MODEL FOR PRODUCT, PROCESS AND SUPPLY CHAIN CONFIGURATION IN A BUILD-TO-ORDER ENVIRONMENT Patrik Appelqvist and Jussi Heikkilä Helsinki University of Technology, Department of Industrial Engineering and Management ABSTRACT A key challenge for companies is to combine the high flexibility required to operate according to customer needs and wishes with the high level of efficiency required to stay competitive in terms of costs. Recent research on supply chain management suggests that companies in highly dynamic industries need not only to constantly develop their supply chain, but also simultaneously develop their product structure and their manufacturing process. In this paper we explore ways in which a company can create competitive advantage in a mature industry through a Build to Order Supply Chain. We carried out an in-depth case study covering (i) a global company producing and selling heavy industrial equipment, (ii) three of its industrial customers, each one representing different customer segments, and (iii) its two-level supply network. Based on the case study analysis, we propose that companies in a build-to-order environment can differentiate in two dimensions of performance: delivery time and the degree of product customization. There is a trade-off between the two dimensions: if the customer requires a highly customized product, it takes longer to engineer and make it, and vice versa. In order to deal with this trade-off in a way that benefits both the customer and the supplier, we propose a model to support the supplier s decision making. The crucial elements of the model are early supplier involvement, product standardization, and a downstream order penetration point. Early involvement in product specification makes it possible to compete effectively in a time-sensitive customer segment and to develop product standardization. Product standardization makes it possible to move the order penetration point downstream. Further, downstream order penetration makes it possible to effectively differentiate by providing fast, flexible deliveries to customers. Product standardization allows simultaneously driving the process costs down. 1 (20)

2 1 INTRODUCTION How to effectively co-design the product, the production process and the supply chain to create one or several value propositions that give advantage to customers? Fine (2000) describes designing the supply chain as the ultimate core competence of an organization. He suggests (Fine, 1998) that studying successful companies in the fastest changing industries would enlighten managers to better understand the nature of this core competence. We took a different research approach. To gain insight into the issue, we participated in a project to analyze the restructuring of a big producer of industrial goods in a mature industry. 1.1 A radical restructuring effort The case company produces heavy Equipment for industrial use. The market is highly competitive and highly price sensitive. There are a few big competitors with a global presence in this field as well as a large number of local producers. The case company has over 20 assembly factories worldwide, each serving its local market, plus some other dedicated markets, with Equipment of all sizes. In 2001, a focused factory project was started. The managing director for Europe stated: Today, customers in industrialized countries don t care where their Equipment is manufactured. We have been more of a multi-domestic company but now we must move into operating globally. Our plants are smaller than those of our competitors, which currently gives us a cost disadvantage. We should focus our operations to fewer and more efficient factories. In each plant, we should get the volumes up and the costs down. In the plan, the product portfolio would be divided into three or four size ranges. In each main market region Americas, Europe, and Asia there would be one or two focused factories assembling products in each size range, and delivering products to customers across the whole region. Challenging targets were set: costs were targeted decrease by 30% and delivery times to be cut by as much as 75%. In implementing these changes the objective was to double the present global market share. Two 2 (20)

3 factories, one in Northern Europe and one in North America were chosen as pilots for the small range. Focusing operations would enable these factories to double their production volume even if the market share of the company as a whole did not increase. In our research we concentrated on the implications for the process of selling and delivering the heavy industrial Equipment. We believed that to operate efficiently a new, focused supply chain would be required to serve the new focused factories. In addition, we saw it as a considerable challenge to turn the shortened delivery leadtimes into business benefits for customers and into an increased market share for the case company. 1.2 Three-dimensional concurrent engineering The case provides an example of a three-dimensional concurrent engineering effort (Fine, 1998; 2000) where the product structure, production processes and supply chain have to be taken into consideration simultaneously. The narrower size range enables product standardization efforts. Increased production volumes could justify investment in production automation. Finally, the shift from low volume, high variety and slow speed operations towards high volume, low variety and high speed operations is expected to require a new way of managing the supply chain. In concurrent engineering, products and manufacturing activities are designed simultaneously (Koufteros et al., 2002). In three-dimensional concurrent engineering the supply chain is additionally considered as a separate entity. Fine (1998; 2000) describes the concept on an industry level. For example, as the personal computer (PC) is a highly modular product, the PC industry consists of a large number of companies that can develop, produce and sell parts independently from each other. Salvador et al. (2002) have taken company and product group as their level of analysis. For example, the chosen type and degree of product modularity has implications on where to source components from. Finally, McKay and Pennington (2001) provide an operational level framework for modeling products, processes and supply chains in detail. The level of analysis in this article is the product and supply chain level. 3 (20)

4 1.3 Problem statement The objective of our research is to create a model to be used by managers when making decisions about the product, process and supply chain in a build-to-order environment. We strive to identify relevant decision areas along with opportunities for a company to differentiate. Empirical insight is gained through the study of a five-level supply network for producing and delivering heavy Equipment for industrial use. 2 LITERATURE REVIEW The framework of Fine (1998) is mainly descriptive. His advice is that emphasis on the product, process and supply chain should be balanced. The literature on manufacturing strategy provides a way of structuring decisions. Manufacturing strategy content consists of a set of competitive priorities and a set of decision areas where decisions are made according to the priorities (Leong et al., 1990). We use the manufacturing strategy content model of Leong et al., (1990) to analyze the task of configuring the product, process and supply chain. 2.1 Competitive priorities Essentially, choosing competitive priorities is to decide what a company wants to be good at. According to Skinner (1974), the operation of a factory should be aligned around a limited set of competitive priorities, because a given plant can usually do a superb job on one or two demands at a given point in time. It is possible to extend the same idea to company and supply chain level: a focused supply chain is expected to outperform an unfocused one (Childerhouse et al., 2002). Performance can be divided into the dimensions of quality, cost, delivery and customization (Safizadeh et al.(2000); see also Garvin (1993) and Hill (1994)). Most authors agree that the choice about which dimensions to emphasize depends on environmental circumstances and corporate strategy rather than on universally applicable priorities (Spring and Boaden, 1997). A frequently mentioned environmental circumstance is the dynamism of the environment, including demand unpredictability and product lifecycle length. In high-clockspeed environments, where demand is unpredictable and product life cycles are short, product availability and flexibility to respond to changes becomes a major issue. In more stable environments, 4 (20)

5 product availability is no less important, but as any company can provide this, the major issue becomes the ability to operate at minimum cost (Fisher, 1997; Lamming et al., 2000; Harland et al., 2001; Childerhouse et al., 2002; Lee, 2002). However, Charles Hill (1988) observes that in mature industries it is common for many firms to have similar minimum cost structures. Under these circumstances, a single company cannot achieve cost leadership. However, a company can gain market share by providing products or services that are better than those of its competitors. If economies of scale or scope are available, increased volumes can, in turn, lead to lower cost structures (Hill, 1988). Industry level characteristics such as product lifecycles are useful for explaining differences between industries and also for managers within single industries in understanding their situation better. However, in real decision-making situations, industry characteristics serve as boundary settings, not as decision variables. According to demand chain management principles (Korhonen et al., 1998; Vollmann et al., 2000), the preferences of end customers should be the basis for configuring supply chains (Lamming et al., 2000). Heikkilä (2002) shows that in the project business, single customer relationship characteristics affect the choice of supply chain. Different supply chains might be needed for delivering the same product to different customers. The research of Holmström et al. (1999; 2000) shows that, in addition to listening carefully to customers, companies can also affect customer requirements by building value offerings that change the customers way of doing business. Specifically, it might be possible to enter the customer s purchase process at an earlier stage, thus saving work for the customer and gaining time for the supplier. Example: retailers traditionally manage their own inventory and issue replenishment orders for the supplier to respond to. In vendor managed inventory (VMI) solutions the supplier takes care of inventory management, saving work for the retailer. In addition, the supplier will gain more time to replenish. It is essential to understand a customer s purchasing process in order to be able to find potential new value offerings. Doing so can benefit both the customer and the supplier considerably (Holmström et al., 1999; Holmström et al., 2000; Hoover et al., 2001; Heikkilä, 2002; Collin, 2003). 5 (20)

6 2.2 Decision areas Identified competitive priorities serve as a starting point when making decisions about products, production processes and supply chains. We have chosen one important decision area for each entity: product variety, process choice, and order penetration point. Product variety is the diversity of products that a production system provides to the marketplace (Ulrich, 1995). To customers variety is meaningful only if the functionality of the product varies in some way (Ulrich, 1995). In general, increasing product variety increases revenue because more customers will find products that fit their needs. However, the marginal benefit from adding product variety decreases for each new variant at the same time as the cost of complexity increases (Cooper and Griffiths, 1994). Consequently, a company should carefully consider the amount of product variety that it should offer (Lampel and Mintzberg, 1996; Agrawal et al., 2001). Alternatively, the markets might define the product variety that a company must provide if it is to compete in the market (Kaski and Heikkilä, 2002). In a build to order environment, where product variety is created after receiving a customer order, high product variety means a high degree of customization. Once the product variety or degree of customization offered to the marketplace has been decided, the engineering problem of how to provide variety with minimum negative impact on the production cost and inventory levels remains. In general, product variety should be added late rather than early in the production process and as far downstream as possible in the supply chain (Mather, 1992; Feitzinger and Lee, 1997; Hoek, 2000; 2001). Hayes and Wheelwright (1979) introduced the product-process matrix where production processes are classified into jobbing, batch, line and continuous flow. The optimal production process changes from jobbing via batch to line as production volumes increase and the product variety decreases. The chosen production process largely determines the performance of a factory on different competitive priorities. In jobbing, the capability to customize products is high, the needed investment is small but labor costs are high. The opposite is true for the other end of the process spectrum. Safizadeh et al. (2000) provide some interesting results from an empirical study of 142 manufacturing plants: over the whole sample there is a statistically significant trade-off 6 (20)

7 between product customization and cost; plants that provide a high degree of customization have high cost structures. However, when controlling for production process the trade-off disappears. That is, once a company has defined its product range along with an appropriate production process, customization that falls within the range offered does not cost any extra. The position of the order penetration point where products become earmarked to a particular customer (Sharman, 1984) has major implications on how to manage the supply chain (Olhager, 2003). For example, the supply chain reference model SCOR contains different sets of processes, metrics, and best practices for make-to-stock, make-to-order and engineer-to-order (SCOR, 2003). If product variety is low, end products can be assembled through combining standard modules. In this case of a downstream order penetration point, suppliers can manufacture according to standard designs. Highly customized products, on the other hand, require custom modules, moving the order penetration point upstream. 3 METHODOLOGY The selected research method is the case study method with a single-case, embedded design (Yin, 1989). Case studies are of particular value in the discovery/description stage that makes up the first step in theory building (Handfield and Melnyk, 1998; Meredith and Samson, 2002; Stuart et al., 2002). The idea of explicitly considering the product, production process and supply chain was popularized as late as In this stage of our research we therefore use case studies for theory building (Eisenhardt, 1989). 3.1 Data collection The unit of analysis in this research is a five-level supply network of a focal company in heavy Equipment industry. The research data consisted of interviews, company archives, and the delivery performance data of customer projects implemented and materials purchased. At the assembly factory in Northern Europe, 12 representatives of factory management, sales, sourcing and production were interviewed. We identified a supply network consisting of five layers: industrial end customers, consultants that 7 (20)

8 design facilities and run installation projects, assemblers that design and manufacture the products, component suppliers, and raw material suppliers (Figure 1). End customers Power plant Electricity Distributor* Paper mill* Third-party consultants Project consultant* Plant builder Assemblers Competitor 1 Focal company* Competitor 2 Competitor 3 Component suppliers Cable producer* Cable producer* Metal works* Component* producer Component* producer...and others Raw material producers Paper mill Copper mill Sheet cutter* Many Steel mill Steel mill suppliers...and others Figure 1: Supply network studied. For this research we visited the ten companies marked with an asterisk (*). End users belong to various industries. We visited an electricity distributor and a paper mill. End users that only occasionally buy Equipment, often involve a third-party consultant in the acquisition project. The consultant specifies the product according to the needs of the end user and often runs the installation project. The Equipment makers do provide consulting but there are independent consultants at well. We visited one consulting company. In total we visited three companies in the downstream supply chain and interviewed seven representatives of these companies. The assemblers of heavy industrial Equipment buy a large proportion of their components from specialized component suppliers. We visited three big suppliers in different European countries as well as three smaller local suppliers. These suppliers represent 61% of the purchases of the focal company. The components are made from basic raw materials such as steel sheets, copper wire and paper. In total we visited six companies in the upstream supply chain and interviewed 23 representatives of these companies. Table I summarizes the interview data. 8 (20)

9 Table I: Interview data summary. Companies Interviewees Countries Direct customers Focal company Suppliers Grand Total A delivery performance database for the time period from January 2001 to April 2002 was used as an additional data source. It included the total project duration for all the 101 Equipment deliveries and all material purchases during the period. We also made an in-depth analysis of all the 56 deliveries in the small range during the period, including analysis of 17 milestones for each project. 3.2 Data analysis The case data was used to analyze the task of designing the product, production process and supply chain in a build-to-order environment. The case analysis focused on the following issues:?? Getting an understanding of the customers way of doing business, in this case the process of purchasing Equipment.?? Identifying the dimensions of performance on which a company can differentiate, such as price, quality, delivery and customization.?? Finding potential value offerings, i.e. combinations of product and service that responds to customer needs.?? Analyzing how implementing the value offerings affects decisions on product, production process and supply chain configuration. 9 (20)

10 4 CASE RESULTS 4.1 Purchasing heavy industrial equipment The process of purchasing Equipment proceeds in a top-down fashion. The first step is to define its size, that is, its performance requirements. The interfaces with other equipment are then defined. Finally, the parts are defined, in some cases on a very detailed level. There are great variations in the level of detail that end users go into when defining the product. The least detailed case is where the customer purchases a big turnkey project such as a complete power plant. In these cases, it is up to the contractor to define the whole site, including the Equipment that is a small but expensive part of this whole. In most cases, the end user defines the interfaces, for example because the product should fit with other equipment that either exists or will be purchased from another source. Finally, some customers have very specific requirements for certain parts. For example, the paper mill we visited has a company standard for Gadgets (a module in the Equipment) because they want to use common spare parts throughout the company. Customers are extremely price sensitive. For them the product is such a big investment that it is worth using efforts such as tendering to get it at a lower price. In addition to price there are also a number of order qualifiers: the interfaces with other equipment must be exactly in accordance with given specifications. The technical performance must be a accordance with given specifications or better. Service and maintenance should be available if needed. The Equipment supplier should be reliable and have a good reputation. However, it seems that having a good relationship is not something that customers are willing to pay for. They will use tendering even though they have a good relationship with one supplier. The required delivery time depends on the larger project execution that the purchase of the Equipment is part of. The lead-time should be short enough so that it does not become a bottleneck. A very long delivery time can result in a supplier being dropped from the tendering. The trend is towards shorter delivery times. 10 (20)

11 4.2 Delivering heavy industrial equipment The specification for the product reaches the Equipment assembler either directly from the end user or via a consultant (Figure 1). Based on the specification, the assembler engineers a product that fits the needs of the customer. As there are hundreds of parameters, two products are seldom alike, except in the rare cases where one customer orders two identical products at the same time. When the parts are known the assembler sends purchase orders along with drawings to part suppliers. To some suppliers, a pre-booking is sent almost immediately while detailed specifications and quantities are sent as the engineering proceeds. Suppliers book capacity as they get the pre-booking or the purchase order. Often the suppliers also do some order specific engineering based on the specifications sent by the assembler. The suppliers make parts and dispatch them to the assembly factory shortly before final assembly. Finished products are tested and shipped to the customer s site. The final step is to install the Equipment and train the customer s personnel to use and maintain it. The whole Equipment delivery process takes approximately 8 months of which 3 months is engineering, 2-3 months material lead-time, one month assembly and 1-2 months shipping and installation. In the engineering phase there is some slack. The assembly is highly efficient. With one customer, a builder of diesel power plants, there is a special arrangement. The diesel plant builder sells standard plants that contain standard Equipment for which no order-specific engineering is needed. Furthermore, during negotiations with the end user of the diesel plant, capacity is booked both in the assembly plant as well as in the supplier s factories. Using these arrangements it is possible to provide Equipment in only three months, which is essential as building the whole power plant takes only six months. 4.3 Potential value offerings In the customer assessment, we had expected to find a customer segment where speed would be an order winner, thereby justifying a supply network focused around speed and flexibility rather than cost. However, it turned out that low cost is an issue that cannot be compensated for in this mature industry. Differentiating on quality also 11 (20)

12 seems difficult because conformance quality must be perfect for all customers, as they will be using the Equipment for tens of years. The main producers of Equipment are all able to produce high quality products. Inventing attractive new product features is also challenging in this mature business. Delivery speed requirement and demand for product customization seem to vary among customers: Based on our interview data, short project duration tends to correlate with a product specification that is on a more functional level (rather than a detail level). Based on these two dimensions of performance it is possible to divide customers into three groups ranging from fast delivery of predefined products to slow delivery of highly customized products (Table II). The supplier assessment showed that it is possible to deliver Equipment in 10 weeks, and the delivery time can decrease further using product standardization. Table II: Customer segments identified. Customer (example) Diesel plant Substation Paper mill Price sensitivity High High High Quality sensitivity High High High Typical duration of whole construction project 6 months 12 months months Product specification Predefined Functional Detailed Customer specifies Size Size and interfaces Size, interfaces and parts 5 A MODEL FOR DESIGNING BUILD-TO-ORDER PRODUCTION SYSTEMS In a mature industry there are limited possibilities for a company to differentiate. In our case it seems feasible to differentiate on two dimensions of performance that customers can perceive: delivery time and the degree of product customization. There 12 (20)

13 is a trade-off between the two dimensions: if the customer requires a highly customized product, it takes a long time to engineer and make it, and vice versa. Figure 2 shows the model that we developed for evaluating how a company can position itself in such a situation. Additionally, the model indicates the implications for the product, process and supply chain design. The model contains four relationships emerging from our case research (numbered 1-4). We will explain these relationships in detail. Duration of larger project Delivery time Downstream order penetration point Early involvement 2 + Possibility for product standardization + Production automation. Figure 2: A model for designing build-to-order production systems 5.1 Propositions From the customer viewpoint purchasing industrial equipment is usually part of a larger project. The duration and schedules of the larger project determines the total time available. From the supplier s viewpoint, however, the relevant issue is the time from receiving an order until the time the equipment is needed. The earlier the supplier gets involved in the larger project, the more time there will be available for delivering the equipment. Proposition 1: Early supplier involvement increases available delivery time. Specifying equipment proceeds in a top-down fashion. In principle, there are standard solutions, such as standard configurations or at least standard modules that cover most customer needs. However, an increased level of detail in specifications reduces the possibilities of applying standard solutions. Getting involved early in the larger project, while specifications are still on a more functional level, increases the possibilities of applying standard solutions. 13 (20)

14 Proposition 2: Early supplier involvement increases the possibility for product standardization. Product standardization affects the choice of order penetration point. If the product is highly customized, customized parts or modules are needed to build it. Thus, the assembler, its suppliers and even second tier suppliers will have to engineer custom designs, placing the order penetration point a long way upstream in the supply chain. A more standardized product can be assembled from standard modules. In this case the order penetration point will be located at the assembler, while its suppliers and second tier suppliers will make parts according to standard designs. Proposition 3: Product standardization moves the order penetration point downstream in the supply chain. If there is a lot of time available to deliver the product, it is possible for parties in several supply chain layers to engineer and make custom parts and modules, thus moving the order penetration point upstream. If a short delivery time is required, no time is available for upstream supply chain members to engineer custom parts and modules. To be able to provide a short delivery time, the assembler has to use standard parts and modules thereby moving the order penetration point downstream. Proposition 4: Short delivery time moves the order penetration point downstream in the supply chain. As long as it is possible to fulfill end customer needs it is beneficial to keep the order penetration point as far downstream as possible, minimizing the number of supply chain tiers occupied with costly and time-consuming order-specific engineering. Moving the order penetration point downstream is expected to reduce unit cost. The appropriate level of automation depends on production volumes and the level of product standardization. Other things being equal, standardizing the product makes it possible to introduce a higher level of production automation. A higher level of production automation reduces the unit cost but requires investment in machinery. Overall, costs are expected to decrease when introducing production automation, assuming high enough production volumes. 14 (20)

15 5.2 Implications for product, process and supply chain design Table III illustrates the implications for the product, process and supply chain design in our case of heavy Equipment for industrial use. Table III: Three proposed product, process and supply chain configurations. Customer case Diesel power plant Substation Paper mill Duration of larger project 6 months 12 months months Involvement in specification process In product development In system-level order engineering In detailed order engineering Delivery time for Equipment 3 months 6-8 months 12 months Product standardization Configuration predefined Configuration defined to order Configuration defined to order Product assembled from standard parts Product assembled from standard parts Product assembled from standard and customized parts Order penetration point In final assembly At first-tier suppliers At first and secondtier suppliers Production automation Possible to automate assembly Possible to automate assembly partially Not possible to automate assembly For the diesel power plant, the duration of the larger project (delivering a turnkey power plant) is only 6 months. To be able to deliver on time, the Equipment supplier is already involved in the diesel plant builder s product development. A minimum amount of order-specific engineering is thereby needed after receiving an order. Product configuration of the Equipment is predefined and it contains standard parts. However, due to cost considerations, these parts are built to order, as it would be too expensive to stock them. It would be possible to automate production of these products. 15 (20)

16 For the paper mill the duration of the larger project (building a new pulping line) is months, a time period that is considerably longer than the normal time for delivering Equipment. As the case product is not a bottleneck, other parts of the paper mill facility are designed first. When the Equipment is specified, specifications become more detailed in order to fit with other equipment. The detailed specification leads to a high level of customization, which is not a problem as there is sufficient time available. The product contains custom modules some of them made from custom parts thus moving the order penetration a long way upstream in the supply chain. Automating the assembly process is not feasible. 6 DISCUSSION 6.1 Theory contributions The Equipment industry shows all the characteristics of a mature, low-clockspeed industry. As indicated by Fisher (1997), Harland et al. (2001), and Childerhouse et al. (2002) the main focus will be low cost. However, focusing on low cost is a necessary step, but in itself it is not a sufficient way to differentiate in an industry where everybody is cost focused (Hill, 1988). We suggest that in a mature industry it is also possible to differentiate on competitive priorities other than cost by carefully building value offerings that are based on customer needs and by designing the products, production processes and the supply chain accordingly. The advice to look into the other end of the supply chain (Holmström et al., 2000) gives ideas about how to setup new value offerings. According to Holmström (1999; 2000), entering a customer s purchase process at an earlier stage saves work for the customer and gains time for the supplier. The case study indicates that early involvement also makes it possible to serve a broader range of customer needs with a product that is more standardized. A more standardized product produced in higher volumes can enable both faster deliveries and lower prices, while still fulfilling customer needs. Heikkilä (2002) concludes that different supply chains are needed to fulfill the needs of different customers in high-clockspeed industries. The case presented in this paper indicates that the statement also holds true for a low-clockspeed industry. Additionally, 16 (20)

17 it seems that it is not just the supply chains that could be different. Configuring the product structure, production process and the supply chain concurrently gives even greater opportunities for fulfilling the needs of different customers. Current literature on the order penetration point is usually concerned with material execution. In build-to-order there is no materials execution before the receipt of a firm customer order but there are differences in the level of customization at different supply chain levels. We suggest that positioning the order penetration point is a critical decision also without inventory buffering. In build-to-order supply chains, positioning the order penetration point is a trade-off between delivery time, customization and cost. Competitive priorities as a basis for making decisions about production system configuration is one of the core concept in manufacturing strategy (Voss, 1995). In the article, we suggest a similar approach for making decisions about product and supply chain configuration. Additionally, we suggest the concept of value offering as a means of choosing competitive priorities. By carefully studying the customer s way of doing business, a company can come up with new combinations of products and services that serve the customer s needs better. Configuring the product, process and supply chain then becomes a matter of fulfilling requirements set by the specified value offering. 6.2 Managerial implications The original challenge we set out to address in the research case was how to turn factory focus and shortened delivery times into a competitive advantage. As Table II indicates, although all customers are very sensitive to cost and conformance quality, there are other needs on which a supplier can differentiate. There is a group of customers who would benefit from the faster delivery of products. These customers are also willing to buy their equipment with predefined specifications that require a highly modularized product structure. These customers would definitely benefit from a supplier with fewer, more efficient plants and a high-volume low-cost production of build-to-order products assembled from standardized modules. Our model for designing build-to-order production systems suggests how a supplier of heavy industrial equipment can differentiate its value offering through concurrent 17 (20)

18 redesign of the product, the process and the supply chain. In a time sensitive customer segment, the customer needs a partner who is able to provide equipment with predefined specifications. This predefinition of specifications requires early involvement of the supplier in the customer s equipment sourcing process. Even if early involvement on the customer side is related to shorter than normal equipment delivery times, on the supplier side this means that the supplier has longer delivery times than its competitors. Early involvement and sourcing of equipment on a more functional level drives product standardization. A short delivery time for the equipment combined with production automation makes it possible move the order penetration point downstream in the supply chain. Moving the order penetration point downstream contributes to shorter delivery times than those that can be found in the traditional equipment production systems. Product standardization combined with high enough production volumes would enable production automation, driving production cost reduction. According to the conventional view of supply chain management, product and market characteristics determine the right supply chain strategy (e.g. Fisher, 1997). We suggest that in a build-to-order environment, a company should not take the product and market characteristics as given. Successfully combining early involvement, product standardization, production automation and downstream movement of the order penetration point would make it possible to gain a differentiation advantage through shorter delivery times and lower costs. This is potentially a very powerful way in which companies can differentiate themselves from the competition in a mature industry. 18 (20)

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