Operations Management: Build To Order - Essay Example

? Operations Management: Build To Order Number Department What is it meant by “build to order” and how does it differ from more traditional approaches to the car business? Build to order (BTO) is a strategy used by commodity producers whereby the building of the items is suspended until the confirmation for the delivery of the products is completed. BTO is the best way of satisfying the unique needs of customers who order small volumes of highly customized products. This practice is common in automobile industry where customers order cars for different purposes. Demirli and Yimer (2008) indicated that under the system, the customer quotes an identified individual owner, and specifies the location of the relevant dealers or retail centres where they would pick the product. Moreover, the client is required to specify if bulk orders are needed; and national sales companies (NSC) for consideration and compliance by the manufacturer. Notably, BTO does not involve the order amendment approach which is common in conventional approaches of build to stock (BTS). In BTS, expected orders which are underway may be modified to satisfy the customer’s expectations. Holweg and Pil (2004), indicate that BTS or Build to forecast (BTF) is also another common approach that is currently being used within the auto industry. The strategy involves commodities that are made before an actual buyer has been recognized, with the level of product release driven by known statistics on the nature of demand in the market. BTS is a common tradition of stocking a wide range of car products, in order to enable dealers to locate an exact product or one that has most of the qualities that a customer prefers. The products are usually available in the local stores and other dealer networks for delivery to the customer as soon as the order is successfully completed. Unlike BTO, the BTS paradigm apparently justifies the huge stock levels within the dealers’ stores, which may prove costly in the long-run (Holweg & Pil, 2004). Stocking a wide range of vehicles, and transporting them to the customer’s collection centre or points of sale is often riddled with additional costs. The extra costs often stem from the reality that finished products are kept in stores that are away from the retail centres, perhaps due to the inability of the dealers to stock the products due to costs or lack of space (Demirli, & Yimer, 2008). Notably, keeping stocks of such magnitude may be a significant trigger to economic challenges facing the automotive sector – problems that are non-existent or highly reduced under the BTO system. The alternative use of BTS has culminated huge capital being held up in the stock across the supply chain. Regardless of the pitfalls, a number of automobile companies produce all their commodities to order, whereas others implement BTS (Lanzara, & Patriotta, 2007). But owing to the effective spread of items within different stores, some manufactures have seen it wise to implement a hybrid BTO, where some products are BTO and others are BTS. Hybrid BTO has proven to be more effective as it limits the impacts of the weaknesses of both systems (Froud, Haslam, Johal, & Williams, 2002). 2. To what extent is the Product Life Cycle framework useful to explain the emergence of “build to order” manufacturing? The product life cycle concept helps corporate organizations to make appropriate decisions premised upon a common conventional, but important knowledge of the sector for more effective strategy implementation. Through the scheduling processes of product development, the projects can be evaluated over time to come to terms with the prevailing patterns, which eventually inspire the emergence of “build to order” manufacturing (Parry, & Graves, 2008). The outcomes of organizational decisions entered during the various stages of the product life cycle allow for easy measurability of the effectiveness of the products for comparison with the strategies of competitors with regard to customer needs and expectations. According to Holweg and Pil (2004), under this approach, products are assessed in a stage-wise manner to eliminate any defects. According to Parry, and Graves (2008), auto manufacturing businesses are always determined to make products that satisfy the customer’s needs not only for now but over time. In light of this, product life cycle enables them to have and archive the knowledge of the expectations within the market so as to strategize for the future. Managers of such companies do not have to build the new items in a vacuum, trying to figure out what will take place over a given period of time. Through a product life-cycle, an auto company will predict a shrinking market share and make appropriate adjustments to ensure its sustainability. Additionally, the product life cycle revolves around the concept of implementing a systematic approach to corporate operations for the elimination of any defects that might arise from BTOs (Lanzara, & Patriotta, 2007). The strength of analyzing how market rivals in the auto industry have managed their product cycles can buoy the managers’ resolve to alter the strategies that will trigger better building approaches to the products or maximize the gains from a particular car model. For example, a manufacturer that is keen on business will monitor the moves made by market rivals and devise an approach to implement new qualities to an original product and extend the maturity stage for better profitability of the company. There are several proven approaches that may be implemented by another company’s corporate processes, simply because an analysis structure has given it a clean bill of health. Holweg and Pil (2004) noted that within an organization, product life cycle helps to shore-up the strategic human resource management and accountability, with regard to the building of customized products. With the general outline of the work in place, the supervisors will deploy qualified staff to particular product development stages, and carry out performance evaluations based on specific goals and objectives within the stages of development, rather than implementing a blanket assessment of the product in question. Product life cycle takes care of the diverse needs and competencies of the staff members, and thus ensures that only the innovative ones in the category of product add-ons are assigned the duty of responding to the maturity stage of the product. 3. What does “build to order” entail in terms of process design? Build to order entails measures that simplify the process design as a way of cutting costs, and hitting the customers’ right desire. BTO reduces the convoluted nature of conventional supply chain stages with regard to management are standardization processes. Other operations that are impacted by BTPO include; computerization of resupply options, and product-line normalization, in order rid the process of any unusual things; and capitalise on low-volume items that leads to attainment of profitability (Parry, & Graves, 2008). The aim of demystifying the supply chain is to substantially limit the convoluted nature of procurement processes to the level where these parts can be acquired spontaneously by computerized and pull-based strategies of modern resupply strategies. The simplification process will also limit the number of dealers. Build to order also reduces the variety of raw materials. Several varieties of raw materials can prevent spontaneity and prompt the manufacturer to opt for stocking all kinds of raw materials or placing an order for them and looking forward to receiving them. BTO solves the problem by helping in the vigorous standardization of received raw materials and their arrangement in a methodical manner. BTO takes care of the spontaneity of orders by reducing the amount and categories of raw material to a situation whereby placing an order for a material can be compared to weighing the incoming tonnage against the outgoing assets, mainly to aid a sustainable movement of materials (Parry, & Graves, 2008). Such buying power and other outstanding materials would fill in the gap left by any wastes and contribute to yielding products of higher quality. A successful reduction of part and diversity of the materials, gives room for the automation of the procurement process to be in line with the market trends, without necessarily considering purchase orders for resupply processes. In a BTO approach, Lanzara, and Patriotta (2007) suggest that all of the suppliers forming the supplier chain do not need to be in business only when they have received a confirmed order. Essentially, it would be counterproductive for a producer of cheaper parts in large quantities to incorporate BTO in the business. It is advisable that these issues ought to be recognized and generated to the order submitted by a supplier. This basically keeps the process running full time, and satisfying the unique customer needs. Despite the advantages, the problem that a BTO supplier chain is likely to grapple with lies in how to best recognize suppliers who qualify for BTO and the ones for BTS. Today, the large numbers of supply chains dealing in the supply chain do not have elaborate measures in place for handling the decoupling point. 4. To what extent do the data concerning return on capital employed in Julie Froud et al. (2000) support the argument that build to order is a superior approach to manufacturing? Build to order has great financial benefits for automobile manufacturers. As such, most of the major players in the industry are increasingly adopting the strategy as a way of cushioning themselves from the impacts of hard economic times, which nearly brought some of the major players to a standstill. The recent global economic crisis (2007-2009), triggered the prominence in the use of the BTO-backed inventory management mechanisms. Rising consumer expenditures, development of multinational plants and the evolution of market demand have played pivotal roles in ensuring that many automobile manufacturers consider developing modern inventory management systems to increase efficiency, cut costs and raise profitability (Froud, Haslam, Johal, & Williams, 2002). With a transformation in favour of build-to-order paradigm, car manufacturers have improved their accessibility in terms of car deliveries across the world. They have also maintained a sustainable record of cars built to a precise customer requirement (Lanzara, & Patriotta, 2007). This reduces the time dealers take to finish their respective stock. The whole introduction of BTO inventory management is a remarkable cultural transformation for a huge number of manufacturers, and with proper foundations in place, future growth will be guaranteed regardless of the unpredictable nature of the economic environment (Froud et al, 2002). Through the system, dealers get the opportunity to gain from a more effective and accurate prediction of new orders, from which the manufacturer can then establish more accurate projections of the product development. The benchmark implies that this projection can be entered into a manufacturing strategy that responds to the prevailing market trends through an established a real-time and multi-layered supply chain. Despite the fact that for years, manufacturers of automobiles have been using lean inventory mechanisms to plan for incoming parts logistics, the industry is beginning to modify its concentration on enhancing the scheduling of outbound logistics (Lanzara, & Patriotta, 2007). This is because key players stand to gain the financial windfalls brought about by BTO. It is notable that these innovative and simplified order-to-delivery systems would have enabled the automobile industry to weather the recent economic storm by enabling industry planners to predict and adjust to hard economic times in future. Generally, BTO in the auto industry entails the capability to swiftly and effectively produce mass-customized cars upon confirmation of spontaneous orders received by the company. With BTO, the manufacturer does not need to make forecasts, or inventory, which has for many years resulted in major purchasing delays and economic losses. Through BTO, these automobiles can be transported directly to the customers, to dealers, or in reaction to the producers’ pull signals. Pull signals often prompt manufacturers to be innovative and incorporate the new developments right away into their products, provided they are convinced such new features are needed by the consumer. On the same note, a company’s suppliers may employ BTO to respond to the manufacturers’ pull signals, as a way of perfecting the flow manufacturing business. And yet, in case suppliers are unable to actually incorporate parts on-demand, they may see it wise to remove them from inventory, by practically transferring the company’s parts of the inventory to the inventory holding internal finished products. In a nutshell, BTO limits financial losses to automobile manufacturers by producing adequate number cars that have been designed to satisfy the unique needs of the consumer, a practice that rhymes quite well with austerity measures. References Demirli, K., & Yimer, A.D. 2008. Fuzzy scheduling of a build-to-order supply chain. International Journal of Production Research, 46(14), 3931-3958. Froud, J., Haslam, C. J., Johal, S. & Williams, K. 2002. Cars after Financialization: A case study in financial underperformance, constraints and consequences. Competition and Change, 6(1), 13-41. Holweg, M., & Pil, F. 2004. The Second Century: Reconnecting the Consumer and Value Chain through Build–to–Order. Cambridge Mass.: MIT Press. Lanzara, G.F., & Patriotta, G. 2007. Inscriptions, and the Problem of Durability: the Institutionalization of Knowledge in an Automotive Factory: Templates. Organization Studies, 28(5), 635–660. Parry, G., & Graves, A. 2008. Build to Order: The Road to the 5-Day Car. London: Springer Verlag Read More