Contextual variety, Internet-of-Things and the choice of tailoring over platform: Mass customisation strategy in supply chain management

Irene Ng,Kimberley Scharf,Ganna Pogrebna,Roger Maull

doi:10.1016/j.ijpe.2014.09.007

Abstract

This paper considers the implications for Supply Chain Management (SCM) from the development of the Internet of Things (IoT) or Internet Connected Objects (ICO). We focus on opportunities and challenges stemming from consumption data that comes from ICO, and on how this data can be mapped onto strategic choices of product variety. We develop a simple analytical framework that illustrates the underlying mechanisms of a product supplier/producer׳s choice between (i) producing multiple product varieties as a way of meeting consumer demand (a “tailoring strategy”), and (ii) offering a flexible and standardised platform which enables consumers׳ needs to be met by incorporating personal ICO data into various customisable applications (a “platform strategy”). Under a platform strategy, the ICO data is independently produced by other providers and can be called on in both use and context of use. We derive conditions under which each of the strategies may be profitable for the provider through maximising consumers’ value. Our findings are that the higher the demand for contextual variety, the more profitable the platform strategy becomes, relative to the tailoring strategy. Our study concludes by considering the implications for SCM research and practice with an extension to postponement taxonomies, including those where the customer, and not the supplier, is the completer of the product, and we show that this yields higher profits than the tailoring strategy.

Highlights

While many nuances and different perspectives on Supply Chain Management (SCM) have been considered, there is general agreement that SCM is concerned with the flow of goods across multiple organisations
This paper considers the implications for Supply Chain Management from the development of the Internet of Things (IoT) or Internet Connected Objects (ICO)
In Subsection 3.4, we analyse the benefits of ICO information for providers which adopt the tailoring and platform strategies under conditions of two‐ sided incomplete information, and specify conditions when it is more efficient for a provider to resort to the tailoring strategy and when they should opt for the platform strategy

Summary

Introduction

While many nuances and different perspectives on Supply Chain Management (SCM) have been considered, there is general agreement that SCM is concerned with the flow of goods across multiple organisations. Within the business‐to‐business (B2B) space, where customers and providers are more similar and symmetrically organised, an S‐D logic conceptualisation to revisit the entire system of supply chain including value creating use activities to achieve collaborative outcomes is certainly more feasible. Providers’ supply chains may have very little visibility of the customer use spaces beyond product exchanges (i.e., providers have less information about usage than do consumers);. Even under conditions of symmetric information about usage between providers and consumers, the provider may not be able to put the information in an order that makes it feasible to engage in mass customisation; (3) Incomplete information on the part of both consumers and providers about future contextual usages This kind of uncertainty is known in economics as ambiguity (Knight, 1921; Ellsberg 1961) and if present, would imply that both providers and consumers may resort to non‐ optimal heuristic choices about future supply and demand for product variety.

Background

The Model

Dealing with issues of asymmetric information between provider and consumers

Discussion

Conclusions