Lowest Cost May Not Lower Total Cost: Using “Spackling” to Smooth Mass-Customized Production
2010, Production and Operations Management
Kyle Cattani, E. Dahan, G. Schmidt
Consider a manufacturer who mass customizes variants of a product in make-to-order fashion, and also produces standard variants as make-to-stock. A traditional manufacturing strategy would be to employ two separate manufacturing facilities: a flexible plant for mass-customized items and an efficient plant for standard items. We contrast this traditional focus strategy with an alternative that better utilizes capacity by combining production of mass-customized and standard items in one of two alternate spackling strategies: (1) a pure-spackling strategy, where the manufacturer produces everything in a (single) flexible plant, first manufacturing custom products as demanded each period, and then filling in the production schedule with make-to-stock output of standard products; or (2) a layered-spackling strategy, which uses an efficient plant to make a portion of its standard items and a separate flexible plant where it spackles. We identify the optimal production strategy considering the tradeoff between the cost premium for flexible (versus efficient) production capacity and the opportunity costs of idle capacity. Spackling amortizes fixed costs of capacity more effectively and thus can increase profits from mass customization vis-à-vis a focus strategy, even with higher cost production for the standard goods. We illustrate our framework with data from a messenger bag manufacturer.
Cattani, K., E. Dahan, and G. Schmidt (2010), “Lowest Cost May Not Lower Total Cost: Using “Spackling” to Smooth Mass-Customized Production,” Production and Operations Management, Vol. 19, No. 5, pp. 531-545.