Sunday, December 1, 2019

Lto (Locate-to Order) in Car Bussiness Essay Example

Lto (Locate-to Order) in Car Bussiness Paper 19 International Conference on Production Research th A SPECTRUM MODEL OF ORDER FUFILLMENT STRATEGIES TOWARDS BTO PARADIGM Yubo. Ma*, Rongqiu. Chen School of management, Huazhong university of science technology, Wuhan, Hubei province, China * Corresponding author. E-mail: [emailprotected] com Abstract Build-to-order is drawing more and more attention by both scholars and practitioners, as a new paradigm expected to overcome the shortcomings of forecast-based production and meet the customer’s need of right specification and acceptable lead time. But there is no a systemic framework to describe the attributes and various order fulfillment strategies of BTO, therefore, the implications and order fulfillment strategies of BTO are confused and misunderstood. In this paper, based on literature review and industry survey, the attributes of BTO, including production strategy attribute, customization content attribute and order type attribute, are ascertained and clarified. Then a spectrum model of order fulfillment strategies towards BTO, consist of sale-to-order, swap-to-order, match-to-order, amend-to-order, hybrid build-to-order, spontaneous build-to-order, configure-to-order, engineer-to-order and develop-to-order, is put forward, integrating various types of theories and application strategies of BTO. At last, the main characteristics and practical implementation of each fulfillment strategies are compared, providing a vision to the decision of adopting order fulfillment strategy for enterprises. Keywords: Build-to-order, Order fulfillment strategy, Spectrum 1 INTRODUCTION Since 1980s, customization and time responsiveness have become the core factors of business competition. In this context, many shortcomings of traditional mass production based on demand forecast has risen to a higher level: customized products are not available and standard products pile to stock, maintaining inventory costs a lot, and in order to deal with unmarketable product companies have to give customers discounts and other sales incentives, so the profit margin and brand value of the companies are eroded. We will write a custom essay sample on Lto (Locate-to Order) in Car Bussiness specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on Lto (Locate-to Order) in Car Bussiness specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on Lto (Locate-to Order) in Car Bussiness specifically for you FOR ONLY $16.38 $13.9/page Hire Writer For breaking the scrape and gaining long-term advantage of competition, enterprises make an all-out effort to look for new operation strategy to quickly respond the end customers demand. Simultaneously, the academes raise a series of new operation strategies in advance enlightened by the practice of some benchmarking companies: timebased competition (Stalk, 1988), mass customization (Pine, 1993), customerization (Wind and Rangaswamy, 2001), instant customerization (Yeh and Pearlson, 2000), build-to-order and mass customization (Anderson, 2004), build-to-order supply chain (Gunasekaran and Ngai, 2005), and so on. These strategies are coupled and supportive to each other, although they differ in terms of the extent and scope of responsiveness ability and customization for customers’ desire products, but the underlying logics are highly consistent: transformation from build-to-forecast to build-to-order. During this course, practical success in Dell Computer highlighted the process of gradual acceptance of BTO, but there are conceptual confusion and misunderstanding of order fulfillment strategies for BTO, and the reason lies in two aspects: first, BTO is not a new concept at all, and in different period the scholars discuss and analyze it from various points of view, so its meaning extends gradually, moreover, its application scope and industry setting diversity in the previous studies results in the different concept and strategy types classification of BTO; secondly, the paradigm transformation from BTF to BTO is actually a systemic and stepwise engineering, different enterprises dopt multifarious order fulfillment strategies towards BTO for their own conditions, the types of BTO have gone far beyond what have been theoretically stated. For this, this paper analyzes the basic attributes of BTO on the basis of literature review and industry practice survey; and develops a spectrum model of order fulfillment strategies towards BTO, systematizing the corresponding theories to BTO and matching them to application strategies in practice; then analyzes the characters and application status of each order fulfillment strategy in the setting of auto industry, so as to provide reference for enterprises to select order fulfillment strategy. ATTRIBUTE ASCERTAINMENT FOR BTO Although BTO has been regarded as a new operations paradigm for future, but there is few articles in comprehensive perspective for it (Gunasekaran and Ngai, 2005). The attributes of production strategy, customization content and order types of BTO are not defined and unified in previous research. For a long time, the attributes confusion of BTO can be sum up to three aspects: the first is that the product from BTO is standard or customer ordered with customized specification? The second is that the orders of BTO are only end customer orders or consisting both end customer orders and dealer orders? And the third is that BTO is on earth a production organizing form or an operations paradigm? The answers will be found in its development process and practical evolution. In the studies by Olhager and Ostlund(1990) , taken production system as research object, the manufacturing continuum is classified as make-to-stock(MTS), ssembleto-stock(ATS), make-to-order(MTO), and engineer-toorder(ETO). Corresponding to this, build-to-forecast(BTF) is similar to MTS and ATS; BTO is similar to MTO; and configure to order (CTO) is similar to ETO. The difference between MTO and BTO is that the lead time is longer in MTO than that in BTO. In MTO, components and parts are made and then assembled, while in BTO, the components and parts are ready for assembly (Gunasekaran and Ngai, 2005). In the further studies by some scholars, particularly Tersine and Hummingbird(1995), assemble-to-order(ATO) is added in the middle of ATS and MTO and purchase-toorder(PTO) is added between MTO and ETO. Thus, a manufacturing continuum consisted of STO, ATO, MTO(BTO), PTO, ETO, starts to generally reflect the difference of production organizing forms resulted from the different cut-in time and position of orders. The above mentioned studies consider BTO as a production organizing form in production system, and apply it to standard products in small batches and much variety. In those manufacturing enterprises where mass production is dominant, it is hard and unnecessary to maintain inventory for products with low demand, so it is usual to build them to order. For instance, commercial vehicle company of Dongfeng limited corporation in China, we surveyed, divides all its products into four types according to market investigation and sales record, and builds standard but not core products with relatively lower demand to order instead of developing finished stock, because the regional sales departments can not forecast the demand accurately. It should be noted that, along with the popularity of supply chain management(SCM) and the promotion of lean production(LP), and in order to enhancing order responsiveness and product quality, more enterprises outsource their mass business to suppliers and just assemble products to customer orders. Thereafter, the borderlines of ATO, BTO, MTO and PTO in previous studies have become blurred day by day. In the recent years, more and more scholars exploit BTO in the view of operations paradigm. Anderson(2004) argued that there are four basic ways to build products: (1) mass production, builds products in batches based on forecasts and puts them in inventory in hopes that they will be the products that customers will order, sometimes named build-to-forecast or build-to-stock. (2) Pseudo build-toorder, waits for an order and then orders all the materials to arrive at which time the product can be build, craft production is a variation of this. (3) assemble-to-order, assemble products from forecasted parts inventory, which is the model used by Dell Computer. 4) spontaneous build-to-order, builds mass-customized and standard products on-demand without forecasts or inventory. Besides, Anderson summarizes a variational form of BTO which has been used in several industry named virtual build-to-order, it means that, according to inventory management system searching web for previously built inventory to order. Similar to spontaneous build-to-order given by Anderson, Gunasekaran and Ngai(2005) pose a new operations strategy: build-to-order supply chain(BOSC), on the base of literature and practice in many companies including Compaq and BMW, what is to meet the requirement of individual customers by leveraging the advantages of outsourcing and information technology. BOSC is defined as the configuration of forms and capabilities in the supply chain that creates the greatest degree of flexibility and responsiveness to changing market and customers requirements in a cost effective manner, and meanwhile BOSC incorporates certain characteristics of agile enterprise/organizations. BTO is more clearly taken as a operations model in the work of Holweg and Pil(2004), who suggest to reconnect value chain to customers through BTO, and describe the five variants of the Push to Pull Strategies relied on the result of a global survey of automotive companies: (1) make-to-forecast(MTF). (2) locate-to-order(LTO). (3) amend-to-order. (4) hybrid build-to-order, which means the order-entry scenario consists of both customer orders and forecast orders of dealers. (5) true build-to-order, which means to schedule and assemble completely to customer orders (Holweg and Pil, 2001). Among these, LTO and true BTO are respectively similar to virtual BTO and spontaneous BTO described by Anderson. In retrospect, we are confirmed that, with the changing of customer requirement and market circumstance, BTO is upgrading from a production organizing form within production system to a new paradigm that is to meet the customers demand for variety even individuality, its meaning and strategy variants get enriched and more coverage. As the operations paradigm, we argue that, BTO is a bundle of orders fulfillment and delivery forms whose ultimate target is to meet customer products demand for variety and individuality as quickly as possible. Its orderentry scenarios may be for the standard and mature products, and also for products variants which have to be adaptively developed for customers, the former is the basal entry scenario for BTO, and its significance is of conversion from forecast-driven production to sold ordersdriven production, so as to avoid building the products no customer want and the inventory costs as well as the loses for sales incentives. The latter can better meet the individuality demand of customers and be more useful to enhance customer value. As for order types in BTO, dealer order is just one transitional form from demand forecast to complete customer orders, and with the increase of flexibility of BTO system and recognition of customers for BTO, the system will inevitably end up being customer orders-driven completely. This can be affirmed by the survey results (SHIOJI, 2000). The ratio of customer orders in the order entry system of Toyota has been increasing during the past 35 years, 20-30% in 1970s and 40-50% in 1980s, since 1990 it has reached about 60%. Moreover, dealer orders are essentially forecast in common demand, and hard to reflect end customers real demand and preferences. When the products that dealers ordered find no customer, there is danger of reverting to the vicious circle that depends on sales discount to enlarge volume. However, dealer orders instead of demand forecast to be the entry scenario for BTO has made a progress ahead. First, dealer orders do better than demand forecast made by manufacturers on reflecting the real customers demand, because the former is closer to the customers than the latter. In the case of dealer orders, proprietorship of each product is transferred from manufacturer to dealers at the terminal station of the final assembly line, so the dealers have nough motivation to dig the real demand and tastes of customers and cautiously submit orders to manufacturers, these have actually facilitated enterprises to accelerate their responsiveness to market. Furthermore, in the current environment of a long lead time for a customized product, it is reasonable for dealers to order some popular products and hold them to buffer customers quick demand, that will add to benefit of each party. So the key problems are to foster the flexible ability that can support customization and to develop the managerial mechanism encouraging customers to customize, leading customer orders to replace dealer orders gradually, and eventually into the pure BTO. THE SPECTRUM MODEL OF ORDER FULFILLMENT STRATEGIES TOWARDS BTO As showed in literature review, along with the upgrading of strategy attribute for BTO, the classification of order fulfillment strategies towards BTO by scholars goes further in details, on the other hand, many innovatory order fulfillment strategies approaching BTO are arising in practice. Systemically hackling the theoretical logic relationship of distinct types for BTO, and modifying oriented to the strategies in practice, is the basic route for us to develop the spectrum model o f order fulfillment strategies towards BTO. The developing process is 19 International Conference on Production Research th showed as table 1. The left part of table 1 displays order fulfillment strategies towards BTO extending in previous studies, with partly superposing and incubating. For example, the virtual BTO given by Anderson is similar to the LTO named by Holweg and Pil, while the hybrid BTO and amend-to-order described by Holweg and Pil are the subsection of ATO suggested by Anderson and others. These superposition and incubation become the framework of the spectrum of order fulfillment strategies towards BTO. But the extending is also uneven, and has no logic inheriting relationship strictly. For instance, the ETO in the study of Olhager and Ostlund does not appear in the types classified by Anderson and Holweg, but based on the above mentioned conclusion that the entry scenario of BTO includes both standard products orders and customized products orders when BTO is considered as a operations paradigm, all of these belong to order fulfillment strategies towards BTO. And, the virtual BTO of Anderson and the LTO of Holweg and Pil do not appear in other studies, but considered as the intergrades from BTF to BTO, they are also order fulfillment strategies towards BTO. These classification differences represent the extending content of BTO on order fulfillment strategies. In the right part of table 1, many order fulfillment strategies towards BTO have emerged gradually. For instance, on the auto market in United Kingdom, the dealers will locate a right product that meets the customer demand in the dealer stock or the central stock when they receive a customer order, and then swap the product and delivery it to customers. These forms are the subdivision of LTO. Another case is that, the European auto manufacturers usually schedule their production to dealer orders, then match or amend the dealer orders to end customer orders on line to satisfy the customers for specification demand. All of these are the forms approaching to ATO. Besides these, CTO and ETO for nonstandard products have been put in use, as the order fulfillment process of large electric equipments, machine tools, bus, etc. Hence, basing on the fundamental principle that BTO is the order fulfillment and delivery forms aiming to satisfy the customers for their tastes and preference on products and service as soon as possible, we integrate various order fulfillment strategies in theory and in practice, vis-a-vis, to develop the spectrum of order fulfillment strategies towards BTO. As showed in table 1, the spectrum model includes 10 step-up strategies for order fulfillment: 1) Sale-to-order, selecting a product that meets the customer requirement from the stock of local dealer and delivering it to the customer. This is the typical sales mode for mass production, but be put in the base of the spectrum model as a benchmark for other order fulfillment strategies towards BTO. 2) Swap-to-order, looking for an appropriate product in other dealer stocks, swapping the products between the dealers and delivering them to customers. 3) Locate-to-order, locating the product what the customer want in the central stock, and delivering it to the dealer then to the customer. ) Match-to-order, matching the dealer orders that are scheduled on line to the customer orders, with a reliable delivery date to the customer. 5) Amend-to-order, amending the configuration of dealer orders scheduled to customer orders before the fixing of product configuration, through this, more customer s are satisfied for their configuration preference and a reliable delivery date. 6) Hybrid build-to-order, in which dealer forecast orders and end customer orders are together used for scheduling, in this case, that customer orders cut into the system take place earlier and customer order ratio is higher. 7) Spontaneous build-to-order, where system schedules completely to customer orders with parts inventory in a appropriate level, or even without, and pulls aterial and parts through spontaneous supply chain, that is the standard form of build-to-order. 8) Configure-toorder, when the customer orders includes nonstandard parts, the enterprises first configure the products to order and validate them, then schedule, produce and deliver the customized products. 9) Engineer-to-order, when the customer orders require transformation and refit, the enterprises should engineer the product first, then build and deliver them. 10) Develop-to-order, for the orders of special industrial equipment and products of great change, the enterprise should design them on the product archetype, then make them or order parts for them and assemble. This spectrum of order fulfillment strategies features that, at different strategy level from bottom to top, the time point of orders cutting-into system is from the end of supply chain to the upstream in succession; the ratio of customer orders in the production and distribution system is getting higher; the customization degree of orders is going further; and, with the current ability of the system, the order lead time becomes longer. 4 THE CHARACTERS AND APPLICATION OF EACH ORDER FULFILLMENT STRATEGY In order to further explicate the strategy spectrum, we describe the advantages and shortcomings as well as practical situation of each strategy under the setting of auto industry. Auto industry, which has already fostered the mass production and lean production, and boasts the most mature and completely supply chain, trying out to chase BTO, so the application and innovation of the strategies towards BTO in auto industry will enlightenments to many other industries. 1) sale-to-order For this strategy, the manufacturers produce standard products from long-term-demand forecasts, and then select the product that can meet customer requirement and delivery it to customer. Moreover, the enterprises manage stock reactively to allow for efficient production. Its advantages are efficient production, the enterprises can attain local optimization of factory operations, and products can be delivered immediately. The shortcomings include high levels of finished stock in market and ignoring real customer demand. For the enterprises, requiring alternative configurations and discounts to deal with aging stock, resulting in loses of product and brand value; for the customers, no way to get what they exactly want. According to the survey result of 3DayCar research program (Holweg and Miemczyk, 2003), in Europe, onefifth of customers drive home cars that are not what they intended to buy; in the United Stated, the ratio is approximately 50%. Since the influence of mass production is rooted, this strategy is still the main form of order fulfillment in many auto companies world widely, especially in developing countries. ) Swap-to-order The manufacturers produce to dealer forecast orders, and increase stock visibility (through the internet, for example) to enhance customer choice. The product located in another dealer stock for customer order will usually be transported to the local dealer to meet cu stomer’s need. In this case, there is higher chance of finding right product in stock, but high stock levels remain in all channels, and discounting is still required to push the unmatched products. Moreover, there adds extra cost to transfer product to location close to customer. In UK, each sale from swapping between dealers comes along with a $180 transportation-to-dealer cost. Table 1: The spectrum of order fulfillment strategies towards BTO Olhager (production system) Engineer-to-Order (Configure-to-Order) Tersine (general industry) Anderson (general industr) Pseudo BTO Engineer-to-Order Purchase-to-Order Make-to-Order (Build-to-Order) (Build-to-Order) Make-to-Order (Assemble-to-Order) Virtual BTO (Searching for Inventory) Mass Production (Build-to-Forecast) (Build-to-Stock) Assemble-to-Order Amend-to-Order Match-to-order Locate-to-order Locate-to-Order Swap-to-order locate the product in other dealer stock sale after building, dealing with stocks is the main function of sales, ignoring real customer demand, eroding product value scheduling to forecast and match to order locate the right product in central stock Spontaneous BTO True BTO Hybrid BTO Configure-to-order Spontaneous BTO Hybrid build-to-order Amend-to-order testing the ompatibility between parts making customer needs visible scheduling based on hybrid orders scheduling to forecast and amen ding Holweg (auto industry) Order fulfillment strategy spectrum Develop-to-order Engineer-to-order Outlines for practice development, ordering parts, assembling engineering for nonstandard parts Assemble-to-Stock (Build-to-Forecast) Make-to-Stock (Build-to-Forecast) Make-to-Stock Make-to-Forecast Sale-to-order 19 International Conference on Production Research th 3) Locate-to-order This strategy is same as swap-to-order in idea, the difference only lies in that the sold vehicles are from distribution center instead of other dealers stock. The dealers don’t stock new cars, and locate appropriate products to the customer orders in the central stock when they received customer orders. When the technology for stock-locator systems first became available in the late 1980s, Ford and some other companies pioneered them in the United Kingdom, initially with great success. Later, as logistics costs skyrocketed and eroded profit margins, vehicle manufacturers backed away from stock locators and turned to distribution centers. Adopting swap-to-order and locate-to-order strategies can increase the possibility of meeting customers demand with a shorter order fulfillment time, 3 and 4 days respectively in generally. ) Match-to-order This strategy schedules production based on dealer orders, and matches the dealer orders to the real customer orders within the production lead time in terms of the model, bodystyle, options and so forth. Consequently, the time point for customer orders cutting-in production and delivery system i s earlier, and the customers can get a reliable delivery date. Its weakness is also obvious: the dealer orders that match no customer have to be produced simply and pushed into market. 5) Amend-to-order Amending the dealer orders to the real customer orders for its specification, the advantage is a higher customer orders ratio, and a shorter order-to-delivery time. While the shortcoming is that order amendment is strictly restricted by system, at one side, the configuration options are limited, and at the other side, even though amendable, the lead times for order amendment are very long. For instance, in generally, the average lead times for order amendment of options, colors, wheels and so on are at least 20 days (Holweg and Miemczyk, 2003). 6) Hybrid build-to-order In this strategy, it relies on forecasting for high-volume, stable products, and real customer orders for low-volume products. It has stable base production and a relatively short order-to-delivery time on average, with less inventory and less need to discount. The weaknesses are that stock remains in market, the company still requires discounting to cope with forecast error, and there is danger of reverting to pure MTF when demand shifts. This strategy is the current main form of order fulfillment used by most large auto companies in Japan and Europe. 7) Spontaneous build-to-order To schedule and build products only after receiving the customer orders, and make the customer demand visible to all parts of the value chain, so as to pull the components from the suppliers spontaneously. In this strategy, auto companies have no stock apart from showroom and demonstrators and need no discounting also. But the system is sensitive to short-term demand fluctuations, not work without proactive demand management, and requiring active revenue management so it will maximize profit. It is the perfect strategy of order fulfillment for auto industry, no company has achieved it yet. 8) Configure-to-order This strategy does not equalize the order configuration service offered in product configuration system on line which has been developed by auto companies (for example, Mazda motors has developed the product configurator on line), the latter aims to increase the customer combination choice in the variety scope of product and component variety, actually, it is the combination of BOM for standard products. While CTO here regards the customer orders that include nonstandard parts and components. Manufacturers demonstrate the product configuration first, then schedule and build it. The bus manufacturing industry has introduced this strategy, for instance, in Xiamen King-long motor corporation that we surveyed, the technology center conducts system configuration tests on the nonstandard components included in the overseas orders, and then confirm the BOM of the orders. 9) Engineer-to-order When customer orders contain more individual elements related to transfiguration, which is related to transfiguration, for instance, the customer ask to change the engine for another type in truck manufacturing industry, and in bus manufacturing industry the customer ask to fix water fountain, toilet and so on, the manufacturers would engineer the products to orders. In the strategies of configure-to-order and engineer-to-order, the companies need to set the business processes of order checkup and accommodative development, in order to study and analyze the orders, and implement the engineering design for ordered products respectively. Currently, most of the companies in bus manufacturing industry adopt the strategies combination in which menu customization is the main form and CTO and ETO are complementary. 10) Develop-to-order For those orders of special vehicles or requiring great transmogrification, the manufacturers make the product system design on the basis of product archetype, then order material and components, build and deliver it at last. Before the appearance of mass production, the craft production is a typical representation of this. Even today, a few auto manufacturers adopt this strategy still, their products are integrated in high degree and attain complete customization. While for most of customers the order-todelivery time is too long and the product price is too high to bear. Recently, Toyota begins to snatch the market of craft production depending on its lean production ability, it is worth expecting the time responsiveness of this strategy to be enhanced sharply. Although there is a series of order fulfillment strategies towards BTO, most auto companies adopt a combination of several strategies to support their business. In auto ndustry, the companies usually drop strategies from strategy 1 to strategy 6 to combine, and their aim is to realize strategy 7: complete and spontaneous build-toorder. In bus industry, the companies usually combine strategy7, 8 and 9 in operations, their challenge is to continuous ly reengineer business process so as to enhance customization degree level and shorten the order-todelivery time gradually. The manufacturers of special vehicles and luxury cars are more likely to adopt developto-order, but in the environment of time-based competition, whether or not able to shorten the order lead times drastically, will be the ultimately challenge for these companies. CONCLUSION AND EXPECTATION With the customization and order lead time becoming the main competition factors, BTO is widely discussed and implemented as a new paradigm. The major idea is to quickly produce and deliver the products that end customer ordered in a cost-effective manner. In the process of transition from mass production to BTO and continuously extending the scope and depth of customization, there is a series of order fulfillment and application strategies. This paper put forward a spectrum model of order fulfillment strategies towards BTO based on literature review and industries survey, a nd analyze and compare the features of each strategy under the setting of auto industry. It will benefit the companies to select operations paradigm and order fulfillment strategy. The transition of operations paradigm and upgrading the order fulfillment strategy is a complex and systemic engineering. How to gradually increase the ratio of customer orders in those approaching strategies and continuously shorten the order lead times, will be a longterm challenge. The more urgent problem is, for particular industry, the ultimate form of BTO is the optimal combination of several strategies, or going to complete customization unlimitedly? There is much work to do. 6 ACKNOWLEDGMENTS This research is supported by the National Natural Science Foundation of China (70332001). 7 REFERENCES [1] A. Gunasekaran, E. W. T. Ngai. Build-to-order supply chain management: a literature review and framework for development. Journal of Operations Management 23(2005). 423-451 [2] D. M. Anderson. Build-to-Order Mass Customization: The Ultimate Supply Chain Management and Lean Manufacturing Strategy for Low-Cost On-Demand Production without Forecasts or Inventory. CIM Press. 2004 [3] Daugherty, P. J. , Pittman, P. H.. 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