Late customization strategy with service levels requirements

Abstract

Both supply issues and interaction between various stages of a production network are common occurrences in product customization under a delayed differentiation strategy. This paper studies non-decouple systems for product customization in the context of a single-market segment under a delayed differentiation strategy by incorporating supply issues and interaction between various stages of a production network. We analyze two alternatives for customizing two individual products. One alternative is the contractual obligations for raw materials delivery where the supplier is responsible for maintaining certain inventory service levels agreements. The other alternative is the customer demand requirements where the manufacturer is responsible for maintaining certain end-products service levels to prevent customer erosion. We characterize the service level requirements in both scenarios and determine the optimal customization point of the production network where the practitioner can operate at minimum cost. We use a Bayesian Belief Networks method to model interaction between stages of the production network and derive the inventory service level requirements. A mini-case involving the customization of a personal desktop computer is used to illustrate the applicability of this framework. We also compare the benefits of delayed product differentiation under non-decouple systems and the traditional decouple systems and provide insights into how firms can choose the right strategy to effectively compete.