Coping with the build‐to‐forecast environment

Abstract

AbstractHigh‐value‐added manufacturing companies today confront a competitive trend toward greater product customization in the face of reduced response times. This scenario is encountered most often in industries like machine tools, heavy construction equipment, heavy manufacturing in general and computer software and hardware. The product is highly customized, yet competition requires manufacturers to deliver it with lead times significantly shorter than the manufacturing lead time. Generally, the scheduling practice here is to release the manufacturing order before the customer order is released and subsequently match incoming customer orders to units in progress. This is referred to as the “build‐to‐forecast” (BTF) approach. This study investigated the coping mechanisms used by manufacturing firms to alleviate this dilemma. The tactics vary with the firm's business strategy, its operating environment, and its capabilities.We report on three case studies from firms building heavy machinery. The firms are similar in terms of the range of final product values, build times, customer delivery times and the very large number of components. Also, their operations require the use of a variety of flexible and dedicated resources. Flexibility in manufacturing processes, modular bills of materials, subcontracting and expediting are some of the approaches that these firms use to help resolve the double bind of short lead times and high levels of customization.We review some of the operational problems peculiar to the build‐to‐forecast environment and suggest alternative approaches for dealing with them. The coping mechanisms are grouped according to the manner by which they help relieve the BTF problem's severity. One set of mechanisms makes the problem less complex by simplifying products or the production process. Another set reduces the risks due to uncertainty in demand or supply. The third set provides engineering and manufacturing slack. While some or all of the mechanisms are used by the manufacturing firms studied, the predominance of particular mechanisms in each firm is explained by a contingency model developed in this paper.The case studies provide useful insights into the nature of the problem and how the firm's organizational environment often dictates the choice of mechanisms used to alleviate it. For example, these firms minimized their scheduling dilemmas with modular product designs, flexible processes, informal organization structures, or formal control mechanisms for limiting customization. We conclude by framing a number of research questions whose solutions would help such firms better manage their operations.