In times of globalization and increasing product complexity and variety due to sophisticated customer demand, new priorities for production planning must be set. The observable trend from supply-driven to demand-driven production will continue forcing more and more manufacturers to revise their production concept. A possible approach to face this challenge is the pull-based Build-to-Order (BTO) system. In terms of production planning, it will be indispensable to integrate the entire process chain. Nervousness is largely caused by external parties such as the supplier and the customer. Therefore, integrated approaches with focus on the customer will gain in importance and become the dominant cross-industrial mode of production. In this paper Build-to-Order is analyzed and evaluated as a specific solution approach by focusing on how it dampens nervousness within the production plan. Broadly speaking, nervousness within the production process can be caused by demand variability (downstream) and supply difficulties (upstream). In this seminar paper Dell serves as an example to illustrate BTO's effect on nervousness reduction.
Keywords Nervousness, Build-to-Order (BTO), rejects, modularization, supplier network, Mass Customization, Dell Demand-driven production and supply chain operations are prevalent issues in today's manufacturing environment. As globalization proceeds, organizations face more complex and volatile planning scenarios than ever. Sourcing of material is now conducted on a global scale leading to complex supply chains with fragmentations and extensions worldwide. Product life cycles are shortening due to captivating technological innovations. The technological progress is also increasing product complexity and enabling a wide product variety with extensive customization available. Intense competition due to the reduction of trade barriers increases the consumer's bargaining power, leading to shorter customer tolerance time. These circumstances make it nearly impossible to improve demand forecast accuracy (cf. [Smi 2013], p.9f). Nevertheless, forecasts are often converted to planned orders committing capacity, material, space, time, etc. to wrong assumptions. Accordingly, more and more analysts and industry experts commend a shift from forecast-driven to demand-driven manufacturing. Legacy push-based systems such as Material Requirement Planning (MRP) are cumbersome while meeting the demand-driven pull-based requirements of today's production environment. In order to drive velocity and on-time production, a transformation must be induced in both philosophy as well as in IT systems. To enhance competitiveness, companies increasingly focus on optimizing production and supply chain management. The continuously increased performance of deployed machinery and facility reduced the direct costs and shifted the emphasis of improvement towards operation and process organization (cf. [Bec 2008]). The advancement of information and communication technology pushes globalization by overcoming constraints in space and time. The customer’s bargaining power further increases by allowing him to compare prices, quality and services more easily and immediately. The customer demands a customized product.
Due to the changing market conditions, e.g. the desire for individualization, Mass Customization evolved with Build-to-Order as one of its specifications. The term Mass Customization is composed of the words "mass production" and "customization". The aim is to offer a customized product at the price of a standard product and establish a long-lasting manufacturer-customer relationship (cf. [Grä 2004]). Anderson defines Mass Customization as "[…] the ability to quickly and efficiently Build-to-Order customized products." ([And 2004], p.294) and links it to the strategy of Build-to-Order by defining latter as follows: "Build-to-Order is the capability to quickly build standard or mass-customized products upon receipt of spontaneous orders without forecasts, inventory, or purchasing delays." ([And 2010]). Initially, a confirmed customer order must be received to activate the production process. The exact opposite of Build-to-Order is the production concept Build-to-Stock (BTS) synonymously referred to as Build-to-Forecast (BTF). BTS is a dominant cross-industrial approach and refers to products that are built before a final purchaser has been identified, with production volume driven by historical demand information (cf. [ParGra 2008], p.3). BTS is therefore an extreme form of the push strategy, since the company pushes products into the market despite lacking a particular customer order. Assembly-to-Order (ATO) describes the final assembly based on customer orders using predetermined product components and modules. The production is likewise initiated upon an order inflow. The customer may arrange his desired product individually within the constraints of the available standardized components (cf. [ReeSri 2005], p.50ff.). According to the typology of Coates, Build-to-Order and Assembly-to-Order may be referred to as hard customization (cf. [Coa 1995], p.6f). Within the framework of this paper, Build-to-Order is not merely defined as customized manufacture but includes the concept of Assembly-to-Order.
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- Build-to-Order (BTO) Globalization Production Planning Dell Product Life Cycle Technological Progress Bargaining Power push-based pull-based Material Requirement Planning (MRP) Mass Production Customization Build-to-Stock Build-to-Forecast Assembly-to-Order Supplier Inventory Costs Material Overhead Rate Modularization Nervousness Standardization PC Manufacturer Economies of Scale Inventory