Executive Summary
There have been many proven supply chain management models that preoccupied the minds of manufacturing plant owners since the dawn of the industrial age. There is the traditional way and there is also various specialized way of supply chain system management. In this paper, the author delves on the Build to Order (BTO) model of managing a supply chain as opposed to the traditional one, focusing on the possible upcoming trends on the industries that rely on this production scheme, and on the future of the Build to Order supply chain system management as a whole. A thorough investigation in the form of review of past as well as the most recent literature reviews about the subject and topic of Build to Order supply chain management was the proposed method of research. In summary, the author of this paper has firm basis on presuming that the Build to Order supply chain management is still in its early stage of development. Introduced a long time but mainstreamed not a few decades ago, there are still a lot of industries that could hop into the Build to Order bandwagon and make it as their main production scheme.
Introduction
The Build to Order (BTO), or what was also formerly known as Make to Order (MTO) manufacturing scheme is one of the oldest style of fulfilling a production order, regardless of the size and the requested commodity. This manufacturing scheme is commonly used by factory owners who specialize in the production of commodities that can be highly customized. From another perspective, it is also commonly used in industries wherein the demand for the main commodity is not that high. Examples of production facilities that typically use this kind of scheme are automobile, computer, computer component, and aircraft factories. These are however, classic examples and are not necessarily the only industries that use the Build to Order scheme. As a result of the gradual but continuous increase in the diversity of commodities being released into the market every year, more and more factories from other industries are now beginning to see some promise on using the Build to Order supply chain management model.
Literature Review
It has been well established in past literatures that the Build to Order supply scheme is most commonly used in industries that process commodities that can be highly configured or customized. One good example of such commodities would be ships. Majority of ship building companies in Japan, although not officially proclaimed, practically use the Build to Order supply chain management. First, they take orders from their clients, proceed with the negotiations and filing of agreements, and of course, setting of goals, before they even begin with the procurement of materials and finally the ship construction. Reviewing the trends in Japan’s shipbuilding sector could present with real data on the trends and future of the Build to Order scheme. According to the Japan Shipping Report (2012), “Japan registered a 26.5 percent year on year rise in export ship Orders to 854,570 gross tons in October 2011, according to the Japan Ship Exporters’ Association” which is a direct manifestation of Japan’s shipbuilding industry’s reliance on the Build to Order model of supply chain management.
In a review by Konstantaras et al. (2009) about the different modifications that can be done by a company that uses the BTO supply chain management, they have come up with the idea, and after their review, the conclusion that optimizing process, return, and modular design policy for manufacturing plants that use the Build to Order supply scheme would most likely translate to higher efficiency, higher savings—because components could be easily disassembled should a certain client request for a product revision, and the ability to grant the customers a return feature which is typically uncommon in BTO-schemed markets.
Another evidence of the evolving Build to Order production scheme is the birth of new strategies related to the context on how the scheme is applied. In Chang et al.’s (2009) study about the impact of delayed differentiation in make to order environments for example, they tried to propose a hybrid form of production scheme. In some aspects of the scheme they developed, which focused on the incorporation of delayed differentiation strategies, it resembles the Build to Order production scheme and in some aspects it also resembles the Make to Stock (MTO) or the traditional model of production. The idea is that they apply the MTO production scheme on the generic parts or components of their offered commodities so that the delivery time would be significantly reduced after a customer orders for a highly configured product.
Manufacturing flexibility often becomes a more complex process for a manufacturing firm that solely relies on the Build to Order production scheme. One of the reasons why that is so is the ever-increasing product variety and dynamic demand fluctuation, diversification of the commodities characterized by a high mix of products and decreasing volume of demand and of proportionally production of such products, customer demands for shorter delivery times, even more diversified customer requirements, and other factors that practically make the manufacturing down to the delivery process more challenging . This can actually be interpreted as a gloomy future for the entire Build to Order manufacturing industry. Manufacturing plant owners are basically being required to continuously and aggressively adapt to an every changing demand-based production environment.
The automobile industry has been one of the anchors of the entire Build to Order manufacturing industry. If there is one industry that other industries should expect to be the most advanced in terms of Build to Order techniques and strategies that would be the automobile industry. Unfortunately, according to a review authored by Holweg and Pil (2005), this is not the case. In fact, despite the billions of potential product variations that the market could impose on automobiles, “customers still compromise by selecting from a limited number of products sitting at automobile dealerships and distribution centers.” This clearly means that the days when Henry Ford’s assembly line mass production model, which emphasized the automobile manufacturers’ efficiency gains, is now outdated simply because of the truth that it does not possess any ability to offer strategic flexibility that customers in this era want. The authors reviewed on the dynamics and web of relationships that could have possibly brought the automobile industry in such a low point and have come up with the conclusion that in today’s world economy, the winners would not be those who own the most efficient and productive factories but rather those who manufacture their products based on their customers’ wants.
Most managers take the fact that there is no way to achieve a certain high efficiency point in managing a supply chain network and maintain them for a definite amount of time because they are simply not meant that way. One strong reason for this is the fact that all firms involved in a supply network are autonomous and they are all required, by virtue of corporate survival, to adapt to basically all types of shifts in the market, especially the ones that could spell the difference between zero income and a million one. This is why according to Hertz and Borgstorm (2011) in industries such as the automobile industry, where the production costs could be very high and at the same time, the product preferences set by the customers could have billions of variations, the Build to Order production scheme would almost always turn out to be the more profitable and efficient model.
The Build to Order supply chain management is still well in its massive growth and development stage because there are still a lot of ways how a manufacturing firm can tweak it based on their needs, and of course, on the trends and future in their target market . Authors Ngai and Gunasekaran (2005) found out that “there is a lack of adequate research on the design and control of Build to Order Supply Chain management (BOSC); there is a need for further research on the implementation of the BOSC, the operations of BOSC, and the information technology of BOSC; human resources issues in BOSC are usually being ignored; issues of product commonality and modularity from the perspective of partnership or suppler development require further attention; and lastly, the tradeoff between responsiveness and the cost of logistics needs further study” because of the still unidentified problems in and undiscovered potentials of the Build to Order production scheme.
Holweg and Pil (2004) studied on the link between product variety and order fulfillment strategies and found out that “providing a variety of attributes in products is an important way of attracting customers, but also often increases complexity” of the production and actually multiplies the managerial as well as the manufacturing costs involved. Nonetheless, it increases the level of customer satisfaction as opposed to what Henry Ford suggest (they can have any color as long as it is black) which basically strips the customers’ rights to choose the commodity and specifications of the commodity they buy. Holweg and Pil explored the link between internal variety or the variety involved in the production of the product, and external variety or the one that is involved in the selling process. The authors discovered that these two manufacturing varieties can be very well independent as opposed to their initial hypothesis that these two are actually directly related. External variety can be problematic for firms who manufacture based on forecasts and managing internal variety on the other hand can be complex for firms who manufacture their products based on the customers’ orders and so “the effectiveness of strategies to mitigate these two variety’s negative effects, such as modularity, mutability, late configuration, and option building, depends on the order fulfillment strategy that the firm follows” .
Conclusion
Despite the fact that the Build to Order production scheme is one of the oldest one ever invented and used by business owners, its use has only been popularized a couple of decades ago and so, based on the process’ age alone, we can logically infer that it still has a long way to go for it to be reshaped into its perfect, and most or at least more efficient form. As suggested in the literatures reviewed in this paper, there is a multitude of ways how different research authors propose on improving the generic model of Build to Order supply chain management. As a concrete example, Holweg and Pil in their paper proposed studying the linkages on the different factors on Build to Order Supply Chain management and using them as an advantage in modifying generic BTO operations. Nonetheless, the fact that the Build to Order production method is still in its growth and development stage remains stable. Over the next few years, more and more modifications, more complex and sophisticated than the ones that were described and explained here, would surely surface. Of course, such modifications would most likely be based on the demands of the customers, and the trends and shifts in the market.
Bibliography
Borgstrom, B., & Hertz, S. (2011). Supply Chain Strategies: Changes in Customer Order-Based Production. Journal of Business Logistics.
Chang, Y., Su, J., Ferguson, M., & Ho, J. (2009). The Impact of Delayed Differentiation in Make to Order Environments. International Journal of Production Research.
Gunasekaran, A., & Ngai, E. (2005). Build to Order Supply Chain Management: A Literature Review and Framewok for Development. journal of Operations Mangement.
Holweg, M., & Pil, F. (2004). Linking Product Variety to Order Fulfillment Strategies. Interfaces.
Holweg, M., & Pil, F. (2005). The Second Century: Reconnecting Customer and Value Chain Through Build to Order Moving Beyond Mass and Lean in the Auto Indsutry. MIT Press.
Konstantaras, I., Skouri, K., & Papachristos, S. (2009). Optimal Pricing, Return and Modular Design Policy for BTO Products in aTwo Parties Supply Chain System. IMA Journal of Management Mathematics.
Report, J. S. (2012). Industry Trends and Developments. Business Monitor International Limited.
Zhang, Q., & Tseng, M. (2009). Modelling and Integration of Customer Flexibility in the Order Commitment Process for High Mix Low Volume Production. International Journal of Production Resaerch.
