Mass customization won't come easy

It's not easy giving customers exactly what they want. Adrian Mello explains the problems underlying mass customization and why it will be slow to take root.

The term "mass customization" sounds like an oxymoron: mass production on the one hand vs. products tailor-made for individual tastes on the other. This conflict is telling--mass customization is very difficult to implement and manage, and despite all the ballyhoo of the last few years, it will take much longer than originally expected before manufacturers and retailers broadly adopt it.

The fanfare surrounding mass customization (also known as "made-to-order" or "build-to-order") increased dramatically with the advent the Internet. Companies saw how e-commerce could allow an individual customer to tailor a product to his or her own specifications and then order it. The vision of mass customization seemed to promise manufacturers several benefits: They could offer service, achieve greater levels of customer satisfaction and loyalty, gather advance information on market trends, and reduce inventory levels.

Companies in several industries have announced or completed mass-customization projects. Nike offers a program called Nike iD that lets customers choose the color, material, cushioning, and other attributes for athletic shoes. Reflect.com, which is backed by Proctor & Gamble, lets women create and order custom personal-care products such as cosmetics, fragrances, and shampoos. (For more on Reflect.com, see our Internet X-Ray case study.) Ford, GM, and BMW are experimenting with pilot programs that let customers specify automobile features they want while reducing the delivery times for these custom products. Forrester Research predicts that build-to-order sales will account for 21 percent of all new car sales by 2010.

Probably the biggest and best-known success in mass customization is Dell Computer, the largest and nimblest competitor within the PC industry. Dell pioneered custom-configured computers, whereby customers pick their computer's processor, memory, storage, and other equipment when purchasing on Dell's Web site. Dell's entire supply chain and distribution system is optimized to provide customers with direct access in a way that reduces Dell's operating costs while improving responsiveness to customers. No other company has come anywhere near achieving Dell's level of success with mass customization--other computer vendors have either been eliminated by the Dell model or are still trying to adapt to Dell's challenge.

But mass customization doesn't lend itself to all products, customers, or markets. The vast majority of consumers aren't interested in customizing commodities such as laundry detergent or light bulbs. In addition, customized products are more expensive than their mass-produced cousins, and customers will have to wait longer to get them. For example, a pair of regular Lands' End chinos costs about $35, but a custom pair costs $54. Whereas customers can go to a store and purchase an ordinarily stocked product or specify overnight delivery on the Internet (albeit usually at extra shipping cost), they will probably have to wait at least two or three extra weeks to take possession of a customized product.

On the business side, the profit margins are too thin to cover the cost and complexity of creating customized versions. "For the most part, it isn't economically feasible to do this and it depends on the type of product," says Lisa Melsted, an Internet market strategies analyst with The Yankee Group. Mass customization makes more sense for big-ticket items such as cars and computers or products where customization appeals to personal tastes, health concerns, or utilitarian advantage.

Returns of customized products are also problematic. Theoretically, customers who have picked precisely the features they want in a product should be less likely to want to return it, but inevitably, some will. When these returns do occur, retailers that make clothing and other products in which the customization isn't reversible face special difficulties. What are the chances that one customer will want a product that has been customized for someone else? Many of these companies either absorb losses from returns or simply prohibit the return of customized merchandise for any reason other than product defects.

The biggest impediment to mass customization is that most companies' supply chains can't handle it. Suppliers' systems are often designed and optimized for producing predetermined amounts of stock rather than responding to direct demand. Many don't even incorporate modern supply-chain management practices (such as automated planning and event management and just-in-time inventory), much less the visibility, specificity, or flexibility to respond to mass customization. "Today's supply chains have been designed to operate under a push model," according to Navi Radjou, a senior analyst at Forrester Research. "With mass customization, manufacturers dreamed of evolving their supply networks into a demand-driven pull model. But that's utopia."

The solution to these supply-chain problems is a compromise between mass production and mass customization, wherein companies initially manufacture general products and then configure them to meet specific customers demands later in the process. Hung LeHong, Gartner G2's research director, says that it isn't economically feasible to customize most products at the beginning of the supply chain. Instead, he says companies will "pluck out products when they are half-finished and add the customer's options."

This partial implementation of mass customization still offers significant benefits to manufacturers. According to Louis Columbus, an AMR Research senior analyst, "it broadens [the] aperture of what a product can do by helping manufacturers address specific markets. It opens up opportunity to sell to a particular market at a particular time at an improved margin."

It will be years before mass customization is commonplace. Even then, it's likely to be an adaptation of traditional mass production, where minor features are configured to demand at the end of the assembly process. Of course, there will continue to be some products that are completely customized. They will be, well, tailor-made.

Do you expect mass customization to take hold quickly or not? What products lend themselves to mass customization? E-mail Adrian or Talk Back below.