Companies are Moving Toward Customized Products

The traditional way of purchasing items is going to a store and looking at predesigned and premade goods and purchasing the good that best suited your wants and need.  However, this method creates a lot of excess costs for the manufacturing company.

1. Companies must create multiple designs to meet the varying wants/needs of consumers
2. Companies use unrelyable forecasts to determine the demand for each design
3.  Companies must pre-manufacture all items and sit on the cost until the goods are sold
4. High inventory costs for holding goods and inputs in warehouses

As we saw earlier in the semester, companies have been moving away from the traditional method towards a new method in which goods are not produced until they are purchased by the customer.  Even though this method limits how quick the customer receives the end good, there is upside that makes this very appealing: Customization.

Through customization, consumers cant design products to meet all of their needs instead of buying a product that meets most of their needs.  This was made apparent when reading about Dell earlier in the semester.  Dell does not make a product until payment is received from the customer.  Once payment is received, Dell's just-in-time manufacturing process makes sure only the necessary inputs  arrive through their cargo bay doors when needed to make that item that the consumer purchased.  As soon as the item is manufactured, the good is then shipped directly to the customer eliminating the need for a middle man.  The major benefit to the customer is knowing that he had a hand in designing his end good

Many new companies are using this strategy from the start.  Blank Label creates custom dress shirts that are designed and customized by the consumer.  This allows the consumer to receive shirt that meets his exact wants.  At the same time, the company greatly benefits by not having high overhead costs.  The "sew-as-you-go" method means that they do not need to produce shirts of all styles and sizes beforehand and there is almost no need for inventory space.  This allows the company to make money on every shirt it sells.  Although the consumer doesn't receive the shirt for 4 weeks after it is purchased, the fact that he created it makes it worth the wait.

Even large and established companies such as Nike can benefit by transitioning to customized products to lower cost.  Nike recently ceated their Nike iD line of shoes which allows customers to chose the colors of different parts of the shoes such as the sole, toe, and laces.  The shoe is not created until the order is received eliminating the need to high inventory and the customer receives the their finished product within 4 weeks of placing the order.

DO YOU THINK MORE AN MORE COMPANIES WILL TRANSITION TO START OFFERING MORE CUSTOMIZED PRODUCT? IF NOT, WHAT CHALLENGES ARE ARE PREVENTING COMPANIES FROM DOING SO?

http://www.slideshare.net/yiyidhe/case3-dell-direct-fianlv2
http://www.nike.com/us/en_us/c/nikeid