InformationWeek
Defining The Business Value Of Technology
April 12, 1999
Assembly OnlineThe Web is changing mass production into mass customization
By Justin Hibbard
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ass production has been the mantra of American business since Henry Ford and the assembly line. But the Internet is changing that. The Web lets consumers configure products online and submit specifications directly to manufacturers or salespeople. Companies in a variety of industries offer Web configuration and build-to-order services to meet a growing demand for personalized products.Not surprisingly, the companies offering the purest build-to-order services on the Web are companies that sell only on the Web.
Chipshot.com, a Sunnyvale, Calif., startup, lets its online customers configure the perfect golf club from 500 million possible combinations of grips, shafts, heads, and detail work. The orders feed directly into Chipshot.com's manufacturing system, and the company builds and ships the products at the same location where it hosts its servers.
The 4-year-old Chipshot.com built its configuration engine from a combination of custom code and freeware. A Dell NetServer runs the Linux operating system, Apache Web server, and MySQL database. Custom Perl scripts link the database to the Web server. Product information and configuration questions are stored as objects in the database. When a customer adds, say, an Intrepid custom seven iron to his shopping cart, the site asks for information about his golf game, such as his handicap and typical score. Then it asks for details about the club, such as shaft length and color. Based on the answers, the site generates a page showing the club's specifications and price.
Already looking to expand its operation, Chipshot.com is upgrading its systems with the help of a recent $3 million cash infusion from venture-capital firm Sequoia Capital. Chipshot.com will install an electronic-commerce server from BroadVision Inc. to guide users through configuration and ordering. Orders will be submitted to an Oracle database, and Oracle enterprise resource planning applications will manage manufacturing and finances. "The Perl Web site was an inexpensive and quick way to get up and running with a good Web site," says Rajeev Goel, VP of technology at Chipshot.com. "But it wasn't ever intended to support a multimillion-dollar business."
Mainstream business should heed the lesson of ambitious innovators like Chipshot.com, analysts say. "Standardization is no longer enough," says Joseph Pine, co-founder of consulting firm Strategic Horizons LLP and author of Mass Customization: The New Frontier in Business Competition (Harvard Business School Press, 1992). "If a company remains in mass-production mode, its customers will walk away." Pine says the Internet is an ideal tool for mass customization because anything that can be digitized can be customized. Furthermore, even products that can't be digitized can be represented digitally, and users can submit customized representations as orders.
Still, building products to order is a step not every company is ready to take. In general, the larger and more entrenched the company, the harder it will be to move to a build-to-order model. Customizing complex products with lots of parts can be expensive. And when manufacturers take custom orders directly from consumers, they risk alienating distributors.
Cabletron Systems Inc., a $1.4 billion networking hardware manufacturer, lets customers configure products on its Web site and then choose whether to order those products directly from Cabletron or from one of the company's resellers. Customers can create more than 5,000 possible products on Cabletron's site by combining interoperable components. A configuration engine from Calico Technology Inc. guides them through the process. If they opt to buy from Cabletron, the engine submits orders to Cabletron's sales software from Siebel Systems Inc. for billing and credit, which then passes the order to an ERP system from SAP that manages the manufacturing and shipping processes.
If customers opt to buy from a reseller, they can click a button that submits a price quote for the configured product directly to a reseller's E-commerce system, and the reseller will contact the customer to close the sale. Cabletron has developed interfaces between its configuration engine and resellers' systems. Over the next six months, the company will roll out a Web-based electronic data interchange application that submits entire orders to the systems of its top 10 resellers.
Cabletron estimates that taking configured orders over the Web is saving the company more than $12 million a year on returned materials. That's because its configuration engine automatically adds cables, software, and extra parts that customers need but often neglect to order. "The configurator tool ensures that customers get accurately configured products, and it allows us and them to save a lot of money," says Kirk Estes, director of electronic commerce at Cabletron.
Auto manufacturers are some of the earliest adopters of Web configuration tools. But most of them don't accept direct orders from Internet consumers. The main reason: U.S. franchise laws require them to sell through dealers. Therefore, carmakers' Web sites let consumers configure cars and then the sites E-mail the specifications to local dealerships. Dealers, in turn, contact consumers by E-mail or phone for follow-up sales calls.
BMW of North America Inc. adopted such a model in January when it launched its Virtual Center. The Web site lets users outfit BMW cars with options such as colors, airbags, and sunroofs. To keep the options and prices up-to-date, custom-built software pulls data from BMW's internal systems daily and transmits it to ACE 3.0 Internet Selling System, a Web configuration engine from Selectica Inc., which guides users through options.
But the options available on the Virtual Center are "standard" options, such as the 11 preselected colors in which BMW offers its 750iL sedan. When Internet users configure a 750iL, they're choosing a car that BMW has already built with one of several standard combinations of options. Once users complete a configuration, they don't submit it to BMW. Rather, they E-mail it to a dealer, who offers them a prebuilt car with the options they chose.
Make no mistake: BMW can customize a car in almost any way. But the consumer must visit a dealer to order nonstandard options. The Virtual Center is typical of auto Web sites, most of which don't offer nonstandard options because of technical requirements. Adding such choices would require BMW, for instance, to program its configuration software to handle every imaginable combination of car features. "A configuration engine has to work within certain rules," explains Lindsay Pebody, retail systems manager at BMW of North America.Still, the day when automakers offer build-to-order service on the Web might not be far away. Ford Motor introduced a trial version of such a service last fall. Internet users in the Tulsa, Okla., area can configure a Mustang with a limited set of options, and Ford will build the car according to the specifications at its Dearborn, Mich., plant. The company sells the cars through several Tulsa-area dealerships jointly owned by Ford and its dealers.
Ford's build-to-order system uses a Web configuration engine from Trilogy Software Inc. The engine pulls product and pricing information from a central database to present users with options. Then it E-mails the configuration to a Ford dealer, who enters a special order in Ford's order-management system. Ford expects to increase its use of build-to-order manufacturing by 2001. The company envisions an end-to-end system that ties together configuration, order management, production, engineering, and supply-chain applications.
Ford is realistic about how far it can take build-to-order manufacturing, given its obligation to sell through dealers. "We're humble enough to understand that we're never going to be totally build-to-order in the U.S.," says Thor Ibsen, Ford's Internet and new media manager. "But we may reduce inventories significantly by focusing on customers who want to build to order."
Henry Ford would be proud.
Photo by Giorgio Palmisano
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