A Model for Product , Process and Supply Chain Configuration in a Build - to - Order Environment

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.