Built to Order, Built to Stock, and the Product Life Cycle Approaches - Assignment Example

CASE STUDY ANALYSIS Due: Q1: Built to Order (BTO) is a production method where productsare built under confirmation of an order by the client or consumer resulting in ‘highly configured products’ (Holweg & Pil 2004: p.83). It mainly involves high customization detailing and bespoke designs, and it usually covers sales where the products are few and usually have a steep price. Built to stock (BTS) is an approach in production where the goods/services are made prior to the placement of orders, mainly based on historical demand and sales projections and forecasts, as a correspondent to ‘hybrid BTO’ (Holweg & Pil 2004: p.88). This approach is associated with mass production, in which goods are produced and stored in warehouses and stocked by suppliers with the anticipation of increased prices. Specialization The first major difference between BTO and BTS is the specialization. Derived from the definition, BTO is founded on the needs of the customer, meaning that the products are developed to suit individual customer wants. Following the consumer placing an order with included specializations, the manufacturer engages in the production of the placed request. In BTS, the customer has little influence over the manufacture as well as specialization of the product. The product is developed to meet the market demand, and specialization of the product design is within manufacturers. BTO is more suited to individual needs and has a higher production cost footed by the consumer while BTS is more focused towards mass production thereby lowering the production cost. Inventory Inventory demand is different for both BTS and BTO approaches. The inventory in the BTO case is eliminated via committing the consumer to a product as opposed to accumulation of inventory by the BTS approach. The consumer has their product developed as per specifications provided in the BTO approach, meaning that the materials used are specific to the placed order. In addition, the inventory of the producer is comprised of partially and wholly sold products. BTS concentrates on increasing the amount of inventory, with the intention of meeting the demand in the market, and often engage in a lot of marketing and promotions to ensure the sale of the products. Supply The market is faced with a low supply where BTO is involved, meaning that the customer cannot walk into a store and acquire a product immediately. Since orders are taken individually and filled to meet the customer’s needs, there is no product readily available for a free market. This concept may mean a loss in profits and employment as well as the concentration is one sourcing customers. The BTS approach, on the other hand, ensures that the market is always supplied with products, such that even when marketing and promoting a product is done, the customer can readily acquire the product. Waiting time Delays are expected with the BTO model of production. Processing the customer’s information on the product and proceeding to ensure it is made engages different departments and participants and results in a lot of time spent on the order. BTS, contrast to BTO means no time wasting in product acquisition since the inventory is always full. Irrespective of how refined the production system is, the placement of a bespoke order takes longer to that of a readymade product. Waiting time for the BTO also increases the chance of survival while capturing the uniqueness of products. Q2: Worker specialization In the BTO setting, employees are usually employed for a specific and unique skill or ability. The producer has specific members of the production teams that cover unique attributes in production, such as the paintwork on the body of the car. In that scenario, the employees are usually refined to their workstation in the project’s duration, and there is a rare movement across or along the hierarchy. In some cases, the customers may be involved to the point of choosing whom to complete various tasks to the product, and that is used to develop categories and classes in the team. Little rotation in the environment Skill and knowledge acquisition in the BTO approach is low and limited to managerial changes, since aspects such as worker rotation is reduced. The approach used in most BTO production lines focuses on the strengths of the employee, and it is the strengths that determine which department, as well as responsibilities, one may handle. Due to little rotation, the employees have no chance of acquiring other skills in the same business since even the management considers this approach a loss in capital, as well as inventory. The aim of the BTO approach is perfection, and anything less than that is a costly affair. Limited learning experience Limitations in knowledge and skill acquisition are not only based on the product volume and/or degree of perfection expected, but also on the costs incurred by the manufacturer. The BTO companies are associated with low volumes, and mistakes are not affordable in such a scenario. The learning experience in the production model is also limited due to factors such as the lack of a replacement. Experience can be gathered outside the company, but with the BTO, even such experience is rarely appreciated, as the employee is expected to continue performing under the initial contract requirements (Roehrich, Parry & Graves 2011: p.228). Taking a chance on acquired skills and knowledge is a challenge for most companies; as such illness of an expert can easily halt production. Boredom and low motivation Redundancy in the workplace is a motivation and aspiration limiter. Being confined to a single role in the production line for a lengthy period of time tends to attract settlement and boredom in the workplace. Once boredom creeps into the workforce, innovation and creativeness is affected, resulting in reduced productivity and recycling of ideas. Gaining skills and knowledge, even in one responsibility, becomes difficult in a situation where the involved feel no need for development. Experts in the field feel that they are entitled by the company, and may arm-wrestle the management for perks, for continued artisanship, usually without any improvement in performance. Limited skill acquisition Training people in the BTO structure is expensive, especially if the aim is to educate the team on different tasks in the production line. In most cases, protégés are brought into the production line to learn from an old hand on the job. The employees thus lack motivation for knowledge and feel burdened by having to teach younger employees on how to achieve as desired by the company. Only the less experienced members of the production line are provided with an opportunity to learn and explore but under strict guidance from the experts. Individuals from the company have a limited skill set, which limits them to a similar position with other companies, thus becoming more strenuous. Q3: Project life cycle The product life cycle approach is useful in mapping the popularity of a product in the market. This concept proposes that all products and services in the market go through phases which are introduction, growth, maturity, and decline. The phases suggest the trends of the market as a reaction to the features of a product or service. The analysis of the product at any stage in the cycle gives the manufacturer feedback on what the market expects, what the company can provide and the cost that in to be incurred to meet such a demand. It is however the desire of all businesses to introduce products from initiation to the maturity phase. The approach is practical in the case of BTS, where goods kept in the warehouses are marketed to popularize them and drive the market demand higher. In the case of BTO, the company tries to avoid the growth phase by allowing the consumer to choose and determine what they need. The companies are focused on introducing the idea to the public, after which they can begin to explore the bespoke options provided by the approach. Product-process matrix The project process matrix (PPMX) is considered as one of the most useful tools to manufacturing managers as it analyses the product structure and product process relationship. The role of the PPMX is to act as a bridge between the process life cycle and the product life cycle. The responsibility of the matrix is determination of the approach to be used in the manufacture of a product based on the volume and demand, as well as the degree of customization involved in the product manufacture. Using the PPMX allows the manufacturer to choose between different modes of production ranging from low volume, low standardization (job shop), multiple products, low volume (Batch), few major products, high volume (connected line flow), and high volume, high standardisation (continuous flow) (Parry & Graves 2008: p.79). In the context of BTO, evaluation of the level of customization is determined by the bespoke variations to a product. Where the specifications are high, more time and resources are demanded, and the output in such a case is low. Considering the benefits that may be associated with a small customer base, to a large market allows the incorporation of production principles such as the use of individual craft’s men to work on a car. Emergence of built to order manufacturing Developing exactly what the customer needs is an important aspect of production, and the PPMX facilitates the decisions made by the involved experts towards triumph, in the context of customization. The need to minimize losses via lean production is an approach used by car manufacturers to reduce costs such as freight costs for products to be locked up in warehouses. The BTO approach encourages the companies to interact with the consumers and establish individual preferences and minimize the loss in inventory. Customization of products in the automotive industry is a means of making the consumers preferences the priority in the development of the car allowing for self-growth and appreciation. Q4: The argument that Honda, Chrysler, BMW and Daimler were the most successful companies in the period between 1989 and 2000, from the ROCE figures is valid considering the formula that is used to determine the values. ROCE (Returns on Capital Employed) is determined by dividing the Earnings before Interest and Tax and the Capital employed. It is a reflection of a manufacturer’s profits with respect to the degree of liabilities invested. The figures simply mean that the manufacturers were able to sell more products than other companies in the period (Froud, Haslam, Johal & Williams 2002: p.22), while not incurring too much as liabilities and operational expenses. The percentages associated with the companies were a reflection of the gains made by the manufacturers with respect to the investments made towards the companies’ assets. By considering the ROCE formula, the argument that Make to Order (MTO) as a production approach is the recent dominant approach to manufacturing holds since the Make to Supply (MTS) approach would mean investing more into the company assets (Froud, Haslam, Johal & Williams 2002: p.22). The ROCE figure would drop if the company engages in the production that is not backed by the market demand, and possible losses might be realized. There are several aspects that will lead to the decrease of ROCE, especially with a company that has lots of ability, financially. Being sucked into a production plan that relies on supply, to demand would mean investing more into production of the vehicle, which may not necessarily mean success of the venture. The environmental factors of the market have to be considered, and the analysis of cash flow in the business evaluated to determine its significance. Cash flow in a business is affected by inflation, whereas the book value of the company’s assets does not suffer the same fate. Considering the ROCE, the company that has depreciated assets is associated with higher ROCE to that of newer companies. In the context of manufacturing, the older companies will have established their plant at a period where inflation was lower, and thus have the ability to make profits compared to the new companies. The old companies have already been introduced in the market, and the make to order approach is less strenuous. Having established their name in the industry, the top manufacturers can proceed with bespoke manufacturing, and reduce the competition expected from newer companies. This evaluation also considers the possibility of more sales for the company, and predictions based on demand can be tricky with the inflation rate increasing. The key to ensuring a loyal customer is meeting their needs, and the MTO approach by the companies is a sure way of establishing the customer needs and ensuring they are met. The ROCE approach makes a comparison between the sold products, and the effort made towards the sale, and the figure being more than expected is a sign of losses, or reducing sales. Ensuring that consumer specification is incorporated in the production of the cars contributes towards the balancing of the company books on resources and revenue collected. Bibliography HOLWEG, M., & PIL, F. (2004). The Second Century: Reconnecting the Consumer and Value Chain through Build–to–Order. Cambridge: MIT Press. 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, vol. 6 no. 1, pp. 13 -41. PARRY, G., & GRAVES, A. (2008). Build to order: the road to the 5-day car. New York: Springer. ROEHRICH, J.K., PARRY, G. & GRAVES, A. (2011). ‘Implementing build-to-order strategies: enablers and barriers in the European automotive industry’, International Journal of Automotive Technology and Management, Vol. 11 no.3, pp. 221-235. Read More