All yours Manufacturing companies are increasingly using the Internet to give customers the impression of personal service. But true customisation needs new production techniques as well

"ANY colour you want so long as it's black," was Henry Ford's approach to customer choice. Click on the website of idtown.com, and you see the next industrial evolution at work. This firm, in Hong Kong, will sell you any of an almost infinite variety of designs of watch, assembled from standard parts, at much the price of a Henry Ford-type watch.

Thanks to the Internet, all sorts of firms are using one-to-one marketing to elicit information about individual customers. Such information could once have been collected only through a direct sales force, and its high cost meant that it was used only for high-value customers. Now, the cost has fallen sharply. And mass customisation allows companies to use such information to produce individually tailored products at affordable prices. "As in so many areas," notes Ward Hanson, author of "Principles of Internet Marketing" and a professor at Stanford Business School, "the Internet allows the democratisation of goods and information."

Until now, these techniques have been applied chiefly to services. Banking, stockbroking, communications, on-line information: all increasingly appear on your computer with your name attached. "Anything that can be digitised can be customised," says Joseph Pine, who helped to found Strategic Horizons, a consultancy in Ohio, and also wrote a book on mass customisation. But now, products that cannot be digitised are increasingly receiving die all-yours treatment too. And as the revolution spreads to manufacturing, firms are finding they need to change their entire production process.

The first manufacturers to tailor products to particular customers have, not surprisingly, been selling to other businesses. Mass customisation is more prevalent in business-to-business, because the customer can attach a dollar value to it," says Mr Pine. The simplest approach is to design a product that buyers can customise themselves. However, too many choices, and too much flexibility, create problems for both customers and company.

But the change has not merely affected customers' costs and convenience. Gradually, it has affected the way that customers work too. The manufacturer that has done most to apply this approach in the consumer world is Dell Computer. To the customer, the company's most striking feature is a website that allows the buyer to design an individual computer and then track it through to delivery. But Dell also shows that when you get mass customisation to work, some remarkable things start to happen.

First, the need to hold stocks of parts, partially finished and finished goods falls sharply: inventories at Dell have fallen from 31 days of parts at the end of the financial year to only six days today, says Paul Bell, who runs Dell's operations in Europe. Much of Dell's production, up to the point of final assembly, is outsourced. That makes it essential for suppliers at every link in the chain to be plugged into good information about what customers want, and when. "If all our suppliers are guessing," says Mr Bell, "you end up with inventory, which is the physical embodiment of bad information." Mind you, this process can also bring an opposite problem: delays when Dell runs out of a particular part.

Speed and good communications are thus essential if mass customisation is to work. Get them right, and another prize is yours. In Henry Ford's day, Ford made the car and the customer paid for it. In Michael Dell's day, the customer pays for the computer and then Dell makes it. Thus, in the past quarter Dell has been sitting on 18 days' sales, and the figure is creeping up as the speed of production increases.

Car makers, lumbered with more than $100 billion of stocks in America, look on this with envy. "We've learnt a lot from studying Dell," admits Mark Ryhorski, manager for consumer-relationship marketing at Ford in America. "After all, they broke the paradigm that great consumer choice means huge amounts of inventory. The auto industry is a trillion-dollar industry, sitting on 60-100 days of finished goods. Think how much of this country's capital is tied up in that." Conventional car making pumps thousands of cars through each plant to keep costs down. But accumulating stock has to be financed and, as often as not, cleared using special deals, both of which eat into margins.

As a step away from this, Ford announced a partnership with Microsoft last year that will give potential customers a view, not just of their local dealer's lot, but of what regional dealers have, what is on order and what is being built. The trouble is that this is not that many steps away from Henry Ford. What Ford and Microsoft propose is merely a customisation of the stock pipeline. Customising the car itself will be harder: for instance, body colour is determined early on, when the newly bashed metalwork is sprayed. By contrast, the colour of a Smart Car, made by DaimlerChrysler, is decided almost at the last minute, when plastic panels are clipped on to the sides. Without changing their production process, traditional car makers will not really be able to customise their cars.

To succeed in mass customisation, firms must change more than just the order in which things are assembled. "One of the biggest changes is in the design and construction of products," says Frank Filler, an expert in mass customisation at the Technical University of Munich. Companies, he says, need to move to modular production processes, in which each group of steps can be separated or clipped together "like Lego blocks."

One example is in the garment business. Timothy Belton left Andersen Consulting in 1997 to set up Express Custom Tailors, producing tailored menswear to order. He offers "a custom garment in less time than you have to wait for the alterations, at a lower price than off-the-rack."

He put the garment-producing end of his business in Cleveland, Ohio, because the town's tailoring tradition gives it a ready supply of skilled workers. But the production process he uses is Lego-style, not old-style. Instead of making the sleeves of a jacket first and then the body, assembling the garment in a series of steps, his workers make sleeves and body simultaneously, working in parallel with others who are stitching other sections. By breaking the 100 or so operations into modules, a garment can be assembled in five hours. "Saville Row on steroids," is how Mr Belton describes it.

Some firms are developing the link between one-to-one marketing and mass customisation. Reflect was created by Procter & Gamble to develop online sales of beauty-care products. It takes information from its customers and offers them cosmetics, shampoos and so on, all made to their specification. It opened 12 weeks ago, and half its orders are already repeat business.

Part of the appeal to customers, says Richard Gerstein, who runs design and marketing for Reflect, is to enjoy a wider choice than in even a well-stocked department store, where "most brands can sell only 15 or so items." But the producer gains even more. Reflect has complete control of its relations with customers, learning from them as well as being able to market to them without a retailer getting in the way.

A new metric too

Few things reflect a firm's priorities more clearly than what it chooses to measure. One corollary of mass customisation is a focus on what customers want, rather than what the company can produce. This is shown, says Stanford's Mr Hanson, in a switch from measuring market share to measuring a customer's lifetime value. "The old way was to measure performance against a fixed set of competitors," he points out. "Now, I may not know who is my competitor. It becomes more important to measure how much a customer costs to acquire and to retain. We couldn't do that before; instead we just measured what went out on the loading dock."

The key to exploiting mass customisation is to manage customers at the same time, observes Mr Filler. Don Peppers, an American writer on one-to-one management, makes a similar point: "Customers are no longer passive recipients of a message. They tell you what they want. You stay with me because we have a learning relationship."

It is not easy to turn around a business designed, in the style of Henry Ford, to produce first and sell afterwards, and point it instead towards serving each customer individually. It requires a different corporate structure, built not around products but around different kinds of customers. Henry Ford's mass production transformed manufacturing in the 20th century. Mass customisation may do the same in the 21st.

The Economist

Notes

1. Saville Row - 1) a street in London where fashionable tailors have their shop; 2) an expensive men's suit

2. paradigm - 1) система понятий или представлений ( в какой-либо области знаний), принцип; 2) тип (напр. потребителей), модель, разновидность

Translation Commentary

Speed and good communications are thus essential if mass customisation is to work.

Следует запомнить перевод конструкции «tо be + Infinitives” в условном предложении:

1. для того, чтобы; 2. если кто-то желает чего-либо; 3. если суждено (см. упр. 3).