Mass Customization - an example from the fragrances industry

Luxury customers want products customized to their individual needs, typically delivered yesterday and are willing to pay for it! Though the first two are almost always true, we must remember that luxury customers also are much more discerning and will want value for their money (be it in fulfilling needs in quality, brand value or status/ego). Lets take a look at the basic elements of mass customization and see how it can be put to work in the luxury industry

The main premise of mass customization is to converge dual systems in manufacturing, i.e hand crafted made to customer order and mass production manufacturing systems. Obviously the benefits of small scale hand crafted or customized manufacturing is more suited to the luxury industry with its insistence on catering to individual customer needs and preferences. However this leads to a proliferation of SKUs (stock keeping units), large inventories and lack of economies of scale - all contributing to increase in costs of operations which will either have to be passed on to the customer or absorbed by taking a cut in the gross margins for the product. We see this happening very frequently when multiple product variations are created for the customer - fashion in multiple sizes, bags/shoes in multiple colours/materials etc leading to a huge finished goods inventory which in the case of luxury goods cannot be cleared with a gigantic Christmas discount sale!

Mass production however relies on eliminating product variety, standardizing the product and churning out huge quantities of the product in an industrialized conveyor belt fashion. This means economies of scale in procurement, manufacture etc and lower inventories and hence lower costs of operation. This also means lower potential for customizing to customer needs and lower customer satisfaction - definitely not a strategy for the luxury sector

However is there a way we can marry the two strategies to enable benefits of both systems? Yes, and Mass Customization" is the answer. Let us look at the elements of a mass customization strategy:

• Modularize Production - here the production system is drastically changed to make the manufacturing "assemble to order". Creating different modules of the product which can be combined in various forms to give us product variety in the finished goods. Eg: Bags are manufactured wherein variation in buckles and belts can be added as separate modules adding product variety when order is placed (Pull orders)
• Postpone Production - Postpone the ultimate assemble of the product till the order is placed allowing for customization to be incorporated and avoiding the build up of finished goods inventory. For eg. Zara keeps its T-Shirts and cashmere sweaters in a neutral shade and colours it when customer orders for a particular colour come in. Hence unnecessary stock in non-moving colours are avoided - fashion being a fickle business to forecast demand accurately, this move would save them $000,s in obsolete stock or shrinkage
•  Standardize Components - Generic components in the product or those utilized in its production can be standardized so that they can be utilized across product variations and even across product lines. This enables reduction in component inventory and the risk of production stoppage due to the unavailability of a small (but critical) component. For eg: Zippers or lining used in fashion can standardized across product variations (product lines, if the design team can be co-opted:)), thus saving costs in maintaining separate inventories for each product variation. Though the cost of this component inventory may be small, it prevents the risk of stopping an entire production line due to the unavailability of a simple generic component costing a few dollars (a zipper?) in a $1000 outfit

Lets look at the example of a fragrances company and how they put "Mass Customization" in practice:

A luxury boutique launched its new collection of perfumes "Seasons"  in 4 variations - Summer, Spring, Autumn and Winter. Instead of manufacturing all four variations and taking it to market, it put together the 3 elements of mass customization is some very simple steps:

Vintage concept of Standardize?

• Modularize: The mixing of the fragrance was altered to ensure that the base remained the same and the notes, colour and distinguishing elements to each seasonal variation were added last. Thus only the overall demand needed to be forecasted accurately to ensure correct inventories and "season" variations could be handled at the assembly stage. 
•  Postpone: The assembly of the product was postponed till the order rolled in with its "season" component. A fine example of Pull system of manufacture
• Standardize: Components such as the spraying mechanism, nozzle and screw tops were standardized across the four variations, thus ensuring minimal inventory and reducing risks of non availability of this critical component

The benefits from this approach was threefold:

• Reduced finished goods inventories, shrinkage and loss in working capital
• Ability to meet customer demand for product variety and yet manage costs effectively
• Better ability to tackle demand volatility across the product varieties

An important factor to keep in mind when implementing "mass customization" for the luxury sector is that it has to be done in close cooperation with the design, marketing and production teams. A joint decision will have to be made on which components of the supply chain will be "mass customized" after a due process of cost/benefit analysis