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Made-to-order -- First computers, then fast food, now cars? (8/99)

'Your way, right away' is a new claim of many fast food chains that now offer consumers the specific toppings and sizes they desire instead of making large batches of identical servings. This tactic of increased customisation is relatively new in the fast food industry.

In the personal computer market, customisation has been a success for Dell Computers. Dell revolutionised the personal computer market by making and delivering personal computers to order. This tactic allowed Dell to become an industry leader, rising above other computer companies that were slow to realise the success of the made-to-order strategy.

Now it appears as though another company is following this strategy, but the industry involved is somewhat unexpected -- automobiles. Toyota Motor Corporation has announced that it will be able to produce and deliver a customer order in only five days, weeks faster than the one to two-month industry standard. Instead of having a large quantity of cars sitting on dealer lots, the customer would simply select the model, custom order the features, options, and colours, and wait until the end of the week for their new car to arrive.

Previously, if the consumer did not find a car on the lot with the desired configuration, dealers would barter by offering rebates or discounts to encourage the buyer to settle for the lot model. The dealership would compromise price so as not to lose the sale to another dealership, and the consumer would take a slightly lower price for a car they may not have wanted. A custom order could be made to fit the wants of the consumer, but due to the long lead times and logistical problems at manufacturing sites, the wait for the car to arrive was often close to two months.

Although this system has worked for most companies and most consumers, a made-to-order strategy that can deliver quickly could be a source of competitive advantage in market segments that are willing to pay higher prices for custom products. Toyota has recognised this need and has been positioning to compete in these markets. For years, it has implemented logistical systems such as Just-In-Time (JIT) inventory practices and production systems that enhance productivity, flexibility, and quality.

Toyota's claim of a 'five-day car' is ambitious, but there is no doubt that the company that is able to achieve the feat will gain a competitive edge over other manufacturers. Customers will become more satisfied with their automobile and the purchase process and will be more likely to purchase their next car from the same manufacturer. Also, if a consumer knows that they can receive a custom order from Toyota in five days -- but would have to wait more than four weeks for the same custom order from another manufacturer -- Toyota is more likely to win the sale due to the speedy service. Even if Toyota falls short of their claim, the impact of made-to-order automobile selling is evident. This competitive strategy will be a great advantage to any automaker that can implement it.

Talking it over and thinking it through

  1. Why does a 'made-to-order' strategy decrease retail inventories?

  2. What are some of the advantages of a 'made-to-order' strategy?

  3. What impact does the Internet have on how consumers use automobiles?

Sharing the news with a group activity

Discuss in a group the advantages and disadvantages of both custom ordering and decreased product delivery time. Do the advantages outweigh the disadvantages, or is custom ordering and shortened waiting time just unnecessary hype?

Thinking about the future

Toyota can be credited with being the first automobile manufacture to employ manufacturing techniques and philosophies that are used successfully today. Cellular manufacturing, just-in-time, and the kanban system are a few examples of methods used by Toyota to allow them to become a world-class manufacturer.

But in an industry that typically relies on a one to two-month lead time to produce custom orders, do you think that Toyota will be able to live up to their claims?

If Toyota is successful, what challenges will competing automobile manufactures face due to Toyota's competitive advantage? And if Toyota falls short of their five-day customer order goal or if it appears that the company has compromised quality for increased speed, will they lose market share due to disappointed and frustrated customers?

Digging deeper

Made-to-order is great when it concerns how well-done a steak is cooked, or whether you want mayonnaise or mustard on a club sandwich, but do consumers really want a made-to-order car? With a seemingly infinite combination of features and colours available in an automobile, do you think that a customer wants to have to choose every option for their new car? And what about the auto enthusiast who knows every detail they desire in a car: do you believe that their business would be lost if they had to wait four weeks for their new car as opposed to five days?

For an update on this phenomenon, see Chapter 20 InTheNews item 2 ' When made-to-order isn't making it'.