Mass Customization in Process Industries „From Mass Production to Mass Customization“
Prof. Dr.-Ing. habil. Hans-Jörg Bullinger, Dr.-Ing. Wolfgang Schweizer Fraunhofer Gesellschaft, Munich, Germany
Abstract Producing enterprises in Europe were in a situation, which marks itself by a strong growth of competition and an individualizing of the customer's requests increasing at the same time. In order to maintain the market, many enterprises with mass production find in front of the difficult task of linking two strategic options: the simultaneous improvement of the differentiation and of the cost structures. In consequence controversy measures would be required. Solution attempts in the context of conventional business models exhibited the following characteristics: a strong rise of the information and communication intensity, an increase of the product type and number of variants, a reduction of the manufacturing lot size, unstable, frequently changing production processes and an extensive storekeeping in several stock levels ("complexity costs"). Enterprises, which introduce the mass production for the individual customer, try to combine the advantages of mass production with those of individual manufacture. Intelligent competition strategies based upon concepts of the “Digital Factory” approach aim to overcome the traditional duality of "cost leadership" or "differentiation strategy" and to make both efficiency and effectiveness possible. A network project aims to test ways and instruments to open Mass Customization as a new paradigm for companies with batch production. That requires a new definition of the relation to customers, trading firms, manufacturers of product configuration systems, machinery suppliers and therewith an almost complete reorganisation of processes and structures. The combination of the advantages of a mass production (control of the processes) with individual customer relation (adopted products) promises a persistent position advantage and tangible yield improvements for the businesses.
Keywords: Innovation, competition strategy, business model, immediate production, Mass Customization, process industries, batch production
1 INTRODUCTION Innovations are the central instrument of control for nations as well as companies, enabling them to get ahead of the international competition - and to stay on top. As innovations create a new lead, fresh employment and new growth, this is just what we need to be able to further afford our wealth. Nations as well as companies, however, find themselves confronted with a growing obligation for innovation. Producing enterprises in Europe are in a situation, which is characterized by a strong intensification of the competition with an individualizing of the customer's requests increasing at the same time. In order to maintain ground at the market, many enterprises with mass production stand before the difficult task to link two strategic options with one another. Classical-proves controversy measures would require the simultaneous improvement of the differentiation and of the cost structures. Solution attempts in the context of conventional business models exhibited the following characteristics:
a strong rise of the information and communication intensity, an increase in number of the product types and variants, a reduction of the manufacturing lot or batch size, unstable, frequently changing production processes and an over several stocks levels distributed, extensive storekeeping. The solution of the apparent contradiction is looked for in a hybrid competition strategy, with the following characteristics: Mass production for the individual customer is the production of goods and achievements for (relative) a large sales market, which meet the different needs of each individual customer of these products, to costs, which correspond approximately to those of comparable standard goods. Enterprises, those the mass production for the individual customer introduce aim to combine the advantages of a mass production with those the individual manufacture. 1
2 INNOVATION AND INTELLIGENT PRODUCTION Innovations in the sense of a process form research and development up to the introduction on the market in particular in high-wage countries such as Germany have a special meaning in the international competition. The present discussion shows that the competitive ability of an enterprise depends not alone from successful measures to the rationalization of the enterprise. Many enterprises supply themselves a "head on head running" with their competitors and have only marginally or briefly lead to competition. The result of such a “cost cutting” strategy is usually only small profit margins, because the products and achievements adapt themselves ever more and the costs are rising.
One solution of the apparent contradiction is looked for in the production concept called Mass Customization, a hybrid competition strategy, with the following characteristics: Mass production for the individual customer is the production of goods and achievements for a relative large sales market, which meets the different requirements of each individual, to costs, which correspond approximately to those of comparable standard goods. Enterprises, those the mass production as a business model for the individual customer introduce, aim to combine the advantages of a mass production with those of the individual manufacture (figure 1).
o ies om f
(manufacture) Process innovation
Figure 1: Mass Customization as a business model.
The enterprises will have to shift their innovation emphasis on the demand side. The search for new market entrances becomes the central task of management . An innovation-oriented strategy creates new products and processes as well as new forms of the customer interaction (figure 2). A goal is, not to catch up the competition at the same trace but to overhaul on innovative ways. We are today in a dynamic surrounding field, that is shaped from increasing innovation speed and increased innovation intensity. Therefore it is often not possible to transfer the past success factors to the future. New technologies together with different fields of knowledge, e.g. mechanics and electron-
ics or physics, biology and engineering sciences, demand enterprises to extend their technology authority. The dynamics of the surrounding field as well as new forms of the customer interaction require fast-reacting and flexible acting. In the field of vision that innovationoriented strategies do not only stand for new products, also the production processes and firm's structures must be analyzed and improved. Only from the holistic view the enterprise can create an effectively and efficiently interlace. The management can activate new markets only if it does not only develop creative ideas, but also time and cost-oriented structures. A condition for it is a long-term, strategic perspective.
Product specification Order information Service/ maintenance
Compiler for Compiler for productionplants production plants
Commercial completion Commercial completion
Figure 2: Components of the configuration system in Mass Customization business model.
3 CHARACTERISTICS OF PROCESS INDUSTRIES In comparison with the total industry calculated after volume of sales and employment, more than the half, with regard to the investment intensity more than two-thirds of the total volume belongs to the process industry. Batch producers are the majority of these businesses. The production type batch production is characterized in particular by the following characteristics: Batch producers are forced due to procedure and technical requirements to manufacture their products in the form of batches in a replication able multi-level value creation process. The manufacture process covers the mass production on the basis of recipes (batch emergence) and the subsequent treatment following on it such as a racking and packing. Thus both complex procedures and technical processes must be controlled. The central authority of the batch producers lies thus in the combination of recipe and processing know-how (figure 3). Batch producers are usually small and medium-sized companies and supply usually a trunk of more heterogeneously, rather small users and customers. The raw
material suppliers are in contrast rather large companybound enterprises. This is a reversal of conditions in the automotive industry. The majority of the batch producers as small and medium-sized enterprises (SME) differ structurally from large-scale enterprises. The characteristics are small resources, limited research and development (R&D) capacities, flat hierarchies, large action and deciding range of the management, a great flexibility and pronounced customer orientation. The projects direct themselves to batch producers, which are concerned with increasing competition and strong differentiation pressure. A large group of business is addressed, that as a relevant part of the process industry one of the most important branches of the economy of the producing business listened in Germany. In comparison with the total industry calculated after volume of sales and employment, more than the half, with regard to the investment intensity more than two-thirds of the total volume on the process industry. Batch producers are the majority of these businesses.
Figure 3: Three mayor steps in batch production . TYPES OF MASS CUSTOMIZATION AT BATCH PRODUCTION The aim of the project was to try and develop the three different Mass Customization Concepts  Self-Customization, Point-of-Delivery-Customization, and Hard-Customization in recipe and processing step to methodically applicable business models for batch production (figure 4). Development of integrating value added chain and improvement by products, services (like customer service and -training, maintenance support) and processes with 4 batch producer as an impulse emitter, suppliers of machinery and IT-firms as partners. The three pilot projects open for the directly involved batch producers new business fields through new mass customization solutions: Customer individual flowers funnels in the market segment under 1 million units per order Customer individual vitamins preparation with industrial production of individual batches in the foodsupplement and pharmaceutical area Customer individual paraffin colouring opening new markets in overseas (specially china) with production location in Germany
Process engineering equipment/plants
Raw material supplier Laboratory/ batch
Type of Customization (according to Piller)
Possible points of interference into the value chain for individual products
Figure 4: Value chain at batch production (reference model).
CUSTOMER INDIVIDUAL VITAMIN AND MINERAL PREPARATIONS The company SoVital Life & Nutri Science GmbH, resident in Karben, Germany, is a still recent enterprise, which works in the market segment food auxiliary means and offers preparations of vitamins and minerals. The competitors either produce of standard products or diversify customer's requests in a variant production. With its product "MyMix" SoVital succeeded to them by production of vitamin tablets for the individual customer. In contrast to the commercial offers, in the preparation by SoVital the personal nourishing behaviour and the individual life habits are considered. In addition the customer fills a specific questionnaire by internet  or pharmacy consultation, after newest medical realizations provided out and receives short time after the order a monthly dose of its individual mixture of vitamins and minerals (figure 5). SoVital follows not only an increasing desire for individual treatment with its product, but aims with its product also in one of the most promising growth market wellness and health. Thus do market searches point out a potential of 27 million consumer of food auxiliary alone in Germany.
Its exhaustion offers a market of more than 1.000 million €. Also the turnover plus of 9% from the year 2000 on 2001 gives an idea of the future chances. To exhaust this potential broadly however, it requires an appropriate production system. So far a wage manufacturer on behalf of SoVital on the basis of more than 100 prescriptions manufactures small batches of at least 500 packing or 30.000 vitamin tablets. This differentiation possibility is sufficient, in order to take 90% off of all individualizing requirements. A goal of SoVital is however the full-individualizing at a price, which differs not substantially from that of the standard products. The dissolution of the contradiction of a linkage of the advantages of mass production and manufacturing for the individual customer meant in the core nothing less than the necessity, to adopt expensive and with difficulty controllable variant production to a completely new, flexible, to develop a sufficient machine system. The challenge to concept a machine was accepted by the engineer's office Con.sen.s, Ulm, Germany.
Process engineering equipment/plants
l ua id e v di p In reci
Raw material supplier
s er m to us c
Figure 5: Value chain in business model „Sovital“
6 CUSTOMER INDIVIDUAL FLOWERS SLEEVES The company Wentus plastic GmbH, Hoexter/Germany exists since 1996 and belongs to the Irish Clondalkin group, Dublin. Founded in 1965, Wentus was progressively developed into a renowned specialist for flexible packaging made from a polyolefin basis. Wentus places itself with approximately 420 co-workers within the ranges film extrusion, printing and confection. Mainstays of sales are blank and printed on role commodity, biologically degradable products and conical flower sleeves. In the past years the production was still dominated in standard device acres with large batches. Wentus is now challenged by the desire of the customers for individual product designs and small batches.
While the market of standard products stagnates or shrinks, the demand on individual customer arranged products rises. The world market covers at present approximately 4 billion flower sleeves, about which approximately 1 billion are still standard sleeves. Therefore within the growing product range “conical flower sleeves for the individual customer" Wentus started to develop a new business model at the beginning of the year 2002. While the average order number of items for flower sleeves is so far with 250,000 pieces, Wentus strives now on for economically to manufacture also small batches with 50,000 pieces or less. This for a mass manufacturer extremely ambitious project pushes to numerous barriers. 5
They begin with the development and user-fair organization of the configuration system (now named crewenta ) contains difficulties of the constant information flow and the interaction of planning and production and cover problems of the personnel employment and a labour organization that can be made flexible (figure 6).
Batch size 1000
250 100 50 25 10
Material Extrusion Printing Print. Setup Manufacturing Manu. Setup Packing Distribution
100 Unit costs
Figure 6: Unit costs as a function of batch size before the introduction of the new business model. As the largest obstacle however the machines for printing and manufacturing of the flower sleeve foil are proved.
Their preparation times are more than 10 times as long as economically portable - and this with the machines to manufacturing the flower sleeves, which belong to a new generation. The machine concepts come of traditional thinking, which focuses throughput by numbers of produced items and not flexibility and fast preparation. On this basis a detailed cost analysis identified the printing and manufacturing departments as the most cost intensive production steps of the value chain (figure 7). Printing takes place at present in the flexography print process. With the highly flexible digital printing in the development however only very small print rates are obtained at present of 25 m/min. Up-to-date such technologies are economic therefore with small batches. Besides there are still technical difficulties with the printing ink "white" with the digital printing on foil. For the optimization in the manufacturing step modified plants were made available. To shorten the setup and preparation times technical improvements have been developed, converted and applied.
ss ce ring ts o Pr nee plan t/ gi en men ip qu e
Raw material supplier
Foil stock rolls
Figure 7: Value chain in business model „Wentus“
7 CUSTOMER INDIVIDUAL PARAFFIN COLOURING The company Kaiser Lacke GmbH with seat in Nürnberg, Germany is since its establishment in the year 1932 in the family estate and is led by the owners. Kaiser Lacke is product system supplier for the refinement of decorative surfaces and with approximately 50 co-workers in the business fields of candle lacquers and glass lacquers. Kaiser Lacke is one the outrider of individual production and possesses already since 1995 a proportioning plant for mixture of small batches for the individual customer in the range of glass lacquers. The company is market leader in the segment Christian tree balls. Since the year 2000 Kaiser offers a system which can be handled simply for the production of individual candle colours. Here the customer, trained by a so-called colour book with exact mixture data, knows 15 basic colours according to desire too approximately 2500 different colours combine. This system finds so far when colouring candle surfaces application. Since centre of the 80s the candles range grows gradually. While the glass range would wind high up required, more than 8,000 recipes must be handled. The export portion increased in the course of the time gradually and amounts to today approximately 60% of the gross income. The urgent setting of tasks, which is derived from it, is the development of concepts, methods and proceedings for the implementation of Mass Customization in enterprises with batch production. In addition the company had set itself Kaiser Lacke as pulse generator in its creation of value network to the goal of developing and of converting a new business model within the range of the paraffin dye through. This develops on the principles and strategies of
Mass Customization and here particularly the self individualizing by the customer. Kaiser Lacke has to develop a new product program for the paraffin through coloration to adapt and constantly interlace the already existing production plants as well as to offer an Internet solution with configuration system . This is to make a constant information flow of the customer over the ranges for selling, production and distribution possible. The configuration system including the electronic colour book must support the customer sufficiently with the process of the colour blending. Furthermore it is necessary to offer an appropriate dosing system to the customers. At the basis of 8 basic colours the customer should be put into the position to manufacture themselves more than 2000 colours. The step of the individual colour is shifted thereby to the customer. This would entail a reduction of the stock (fewer colours) and thus storage costs for the customer. With this business model a direct supply under economic aspects becomes possible. By the small volume and weight of the highly concentrated colour pills new markets in overseas are opened (figure 8). A further very important effect is the fact that you can produce 2211 colours by only using 10 basic colours. The amplification of our colour variety by reducing the storage of raw material is a huge advantage in regard to selling and the business management. Kaiser reproaches a camp in Southeast Asia especially for the Chinese market. This became economically possible due to the few basic colours and that small volumes and weight.
Individual Candle Dye-Through Application
Process engineering equipment/plants
8 basic colors
customer Raw material supplier Self-Customization
Figure 8: Value chain in business model „Kaiser“
8 RESULTS OF THE RESEARCH PROJECT Three concrete business models based on mass customization in different industries were realized. Each model comprises a new product generation, a new IT-solution with a configuration system, new machines and plants and a new organization structure. Another mayor result of the project is a toolbox for the batch industry to identify business models for the production of customized batches. The Toolbox contains: A tool for enterprise-individual strategy work in small and medium-sized enterprises [6,7]
An extension of the value stream mapping tool  for batch production A simulation game for training and supporting business model development  A curriculum for a specialized adviser "production for the individual customer" A roadmap for the development and introduction of business models based on the Mass Customization concept in process industries (figure 9) 
Analysis of innovation potential
• Growth potential of market • C ore c ompetenc es in tec hnology • Ideas P ilot c us tomer IT-S pecialis t Material s upplier
Des ign of bus ines s model
• • • • C os ts B us ines s proc es s es Organizational s truc ture P ers onnel development Mac hinery s upplier
• Automatic preparation • Integration of proc es s s teps • S imple s c hedules
P roduc t des ign
• L aboratory s tudies • Analytic / Doc umentation • Des ign for manufac turing
C onfiguration s ys tem
• P ers onalization • Networking • E -C ommerc e-s olution
C us tomers
• Market s tudy • As s ortment ques tions • Dis tribution s trategy
Figure 9: Master schedule to Mass Customization 9 CONCLUSION Innovations are not more structured under employment of a strategic innovation management as a coincident event, but are result of a continuum process. Innovation processes are not only seen today as task delegated to a certain person's group, but refer in all phases specialized spreading participants within the enterprise and also beyond the enterprise borders. Creativity and customer orientation are based on this broadly put on Co-operation. As shown in figure 10 the development of an intelligent competition strategy is a project of the whole company. Innovations are the central instrument of control for nations as well as companies, enabling them to get ahead of the international competition - and to stay on top. As innovations create a new lead, fresh employment and new growth, this is just what we need to be able to further afford our wealth. Nations as well as companies, however, find themselves confronted with a growing obligation for innovation. Especially in a changing world it is necessary to retain and strengthen the position in the world market through the development of new products and services as well as through the acquisition of new customer groups. In reality this means that companies nowadays have to face growing global competitive pressure, an increasing complexity and variety of technically excellent and individual products 8 or services. Due to increased customer orientation this also involves a trend from serial products to masscustomized and service-intensive product packages. In spite of time and cost pressure, companies are still forced to exploit extensively the growth potentials of their valueadded chain. At the same time, they are confronted with ever more complex framework conditions, e.g. extensive legislations. In particular within a knowledge-based society, accelerated cycles of change in technology, economy and society and the dynamics of international partners and competition represent a challenge but also a fresh chance for a "management of innovation". In order to enable companies to take a leading position within the international competitive field, innovation processes need to be accelerated and a networked and agile economic organisation has to be built up. In this context, an intelligent production also serves as a safety mechanism and should reduce the time-to-market of new products. Therefore Intelligent Production always includes the following areas: The customer in the focus All functions involved pull also Management of knowledge and innovation
Technical line Technical line
Commercial line Commercial line
Organization/ Organization/ data processing data processing
Holistic production system • TPM (Total Productivity Maintenance) • Shorten preparation time • JIT (Just-in-Time) • Production-on-Demand • …
• • • • • •
Technologies of New Economy E-Commerce CRM (Customer Relationship Mgmt) One-to-One-Marketing Direct sale …
Figure 10: Participants and elements of a Mass Customization solution - from view of the organizational structure
10 ACKKNOWLEDGEMENT This research and development project was funded by the German Federal Ministry for Education and Research (BMBF) within the national “Research in Production for Tomorrow” Framework Concept and was managed by the Project Agency for Production and Manufacturing Technologies (PFT), Forschungszentrum Karlsruhe. 11 REFERENCES  Rayport, J. F.: Das Angebot dem Kunden anpassen, Harvard Business Manager, 2/2005.  Piller, F.; Stotko, C.: Mass Customization und Kundenintegration – Neue Wege zum individuellen Produkt, Symposion, 2003.  Configuration system of Sovital for individual vitamin and mineral preparations: www.sovital.de  Configuration system of Wentus for individual flower sleeves: www.wentus.de (follow link crewenta)  Configuration system of Kaiser Lacke for individual paraffin colouring system: www.kaiser-lacke.de  Dahmer, J.: Unternehmensindividuelle, integrierte Strategie-, Innovations- und Personalarbeit, GfAH Verlag, 2004.  www.potenzial-check.de  Rother, M.; Shook, J.; Womack, J.; Jones, D.: Learning to See, Lean Enterprise Institute; 2003.  www.life.iao.fraunhofer.de  Project Homepage: www.uni-chop.iao.fraunhofer.de