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After six years running, the company discontinued the Lego Digital Designer in The company stated that the rebuild of the entire setup would have made the offering too expensive. The implications from the SCD were that the starting point of supply chain relevant customer segmentation is customer requirements that define the magnitude of customisation per customer.
The customer itself is signalling his need for customisation through co-creation. The modularity of the basic building bricks and the simplicity of product assembly together with the infinite number of finally assembled product variants make the product the ideal basic for application of mass customisation or customisation in general and thereby offers many opportunities for SCD.
Nevertheless, the case shows also two substantial constraints: i the necessary level of quality requirements of customers as a co-producer and ii the supplementary costs respective not realized synergies between the two supply chains side-by-side. Another example that can be used to illustrate SCD is the supply chain concept of the Adidas group 6.
In fact, this just means that the company is focusing on differentiation of its supply chain s with regard to customer needs. Analysing the different supply chains of Adidas, each serving another distribution channel, one can identify different magnitudes of customisation with respect to important supply chain settings.
The crucial distinction is made between e-commerce that offers a high level of customisation and standard channels via wholesale and retailing [56]. Customer segments can be described respectively. In fact, to customise a product, customers need to exhibit a certain will to engage in the co-creation process, either because of higher product functionality professional or semi-professional sports athletes or because of the will to demonstrate individual life style.
The resulting segment within SCD is called engaged customers that try to profit either from rational or emotional benefits through co-creation. The crucial difference between the two customer segments is the magnitude of product variety. The resulting SCD is illustrated in Figure 4. For the first customer segment engaged customers there basically exist two different CIC to start their co-creation process: Either through consulting the online configuration tool on the mi Adidas webpage 7 or through physically moving to one of the Adidas flag ship stores, either brand stores or concept stores [56] [57].
Shoes can then be customised and personalised through choosing size, colours of several different parts of the shoe, personal icons and several functional specifications especially for sports ware. After ordering the shoe, a completely automatic ordering processing systems chooses the optimal manufacturing location several plants are located in different Asian countries for the respective model and initiates assembly of the customised shoe out of a limited amount of shoe building modules.
Figure 4. Supply chain differentiation at Adidas. On D3, hence, the supply chain setting can be interpreted as ATO. However, through focusing on Asian assembly plants, one could also interpret the setting of D3 as continental FPS. Assembly of shoes is time consuming and together with the continental logistics postponement this results in relative long lasting ordering lead times for mi Adidas products from around 21 days. The latter allows compensation of the lead time elongation during product assembly.
Since only courier services are used, the delivery flexibility is standardised STF. In terms of D2 differentiation, the engaged customers profit from several SVC3 service opportunities.
Especially when ordering mi Adidas shoes within the flagship stores, customers can profit from intensive process-oriented engineering support through experienced employees as well as several technologies to fit the personal requirements with the customisation process for example foot-scanning technology and fitting expert support [58].
The latter can be interpreted as process-oriented training or even when replacing sport with business as business-oriented consulting service, especially in terms of professional athletes. The whole supply chain for engaged customers hence is leagile with focus on flexibility and service as well as a high level of customer co-creation through the customisation process.
Differentiation mainly occurs on D3 of SCD. For its less engaged customers standard customers , the Adidas group executes a completely different second supply chain. The crucial difference can be found in the fact that standard customers are served through a completely forecast-driven mass production supply chain FSS focused on leanness, cost and quality of the products.
Neither courier services nor special delivery flexibility are necessary and standard products for selling through wholesale and retail channels are stored within several distribution centers [58].
On D2, services are restricted to SVC1, either through product-oriented trainings general sales consulting at the POS or help desks and hotlines. Implementing the supply chain differentiation approach, Adidas had to handle a range of challenges in the upstream supply chain and at the level of retailers.
Despite Adidas has large mass production facilities especially third-party manufacturers , the internal and external supply chain affiliations had to be enabled to handle the new customization idea on a large scale mass customization. The company decided to follow a controlled expansion of SCD step-by-step.
With growing demand, Adidas allocated more and more resources in the supply chain to deal with the technology-driven differentiation approach.
The SCD approach was sequentially enhanced on further categories starting with soccer footwear in , the running, basketball and tennis footwear followed in the years to The years after, other sport goods and wear succeed 8.
In order to handle additionally cost of inventory together with higher production cost for the customized products, Adidas tried to integrate the new approach into existing functions. Potential problems with SCD at the retailer level? The presented practical case examples demonstrate that it is possible to represent the logic of the SCD framework.
The respective SCD settings hence are focused on D3. The differentiations with respect to D2 can be subsequently interpreted as a consequence of D3 settings, namely as services necessary to support customers during the co-production process. Additionally, the case examples nicely illustrate the connection of the SDL with SCD thereby supporting the service and customer-centered origin of the differentiation approach. The results of the case examples thus emphasize the need for a clear understanding of customer requirements when considering SCD decisions.
Notably, the cases showed different possible motives for SCD, each influencing SCD decisions within different dimensions in advance that subsequently might result in further need for SCD on other dimensions. The customer segmentation concept of [10] was combined with mass customization [57] and the co-pro- ducer idea [45] together with the servitization approach of [50] as well as [12]. The two research objectives have been achieved: First, we identified the most important factors that need to be considered with respect to well performing SCD; Second, we derived and illustrated a meaningful concept to connect customer requirements with supply chain relevant decision factors.
The amount of distinct supply chains necessary to optimally serve customers with a certain product can vary significantly since specific product characteristics generate distinct sensitivities of the supply chain settings towards changing customer requirements.
The developed frame of reference revealed several interesting managerial implications. First of all, it is important to emphasize its opportunities in general to further differentiate companies within highly competitive environments like in the consumer goods industry. Thus, it makes sense to consider factors defining an adequate SCD for a company. Second, the framework offers practitioners a tool to easily structure their comprehensive decision problems when considering SCD and it provides new access to the so far most crucial scientific findings within the field of supply chain management.
Furthermore, the framework also includes several customer service factors within a holistic approach. Evaluating customers with respect to their need for co- creation actually may help to detect the crucial location within the supply chain where differentiation should take place. However, SCD constraints have to be addressed while developing and realizing the approach.
The synergies across the different supply chains can be archived by a gradual implementation approach. After building up the first experience, the SCD can be rolled out to further commodities, customer groups or regions. An overview of chosen differentiating practices is given in Table 3 [59]. Table 3. Overview of supply chain differentiating practices Source: PwC [59]. Altogether, we demonstrated an approach that can be applied to frame SCD decisions in retrospect but they left open how to apply the framework to crucial SCD decisions in advance, meaning how exactly changing independent variables affect the manifestations of the multiple and interconnected dependent variables.
Hence, to provide real decision support for decision makers, the framework components need to be further developed. Future research needs to fulfill the following requirements: 1 Research should consider the most relevant independent and dependent SCD variables; 2 It is important that the interconnection of SCD dimensions is addressed; 3 Future investigations should support decisions and should consider the experience of supply chain managers, not replace them; 4 To be practicable, the complexity level should be minimized; 5 Last but not least, the influence of customer requirements on the supply chain settings can also affect phases upstream the manufacturing process as well as the network level.
In fact, this might remain one huge future research branch in the field of SCD. All-in-all, more investigations are required in order to achieve an adequate basis for SCD that encompasses not only strategic, but also operational and tactical considerations of SCM: Firstly, make-or-buy considerations have to be made.
This question includes resources and capabilities considerations in accordance with the resource-based and relational view [60]. Secondly, target supply chain configurations have to be derived in accordance with a strategy-struc- ture discussion [61]. This has to occur for each individual supply chain in order to support its specific customer segment.
Besides the factors identified, necessary infrastructure elements need to be determined in order to provide an adequate basis of internal and external supply chain resources. Thirdly and finally, a SCD on the corporate level has to be addressed in order to realize synergies through combination of business areas as well as through coordination of corporate activities and interaction with stakeholders [62].
The authors want to thank the reviewers of this paper for their useful and motivating comments. Furthermore, special thanks go to the attendees of the NOFOMA Conference in Copenhagen, Denmark, for their valuable and inspiring feedback given to the presentation of the very first version of this article working paper status.
European Logistics Association, Brussels. McKinsey Quarterly, 1, Journal of Operations Management, 19, International Journal of Services Science, 4, Journal of Operations Management, 16, Harvard Business Review, 75, The International Journal of Logistics Management, 10, Computers in Industry, 61, International Journal of Production Economics, 37, There are simulation models that predict the usage of production levels and machines.
A management control process that is used for the purpose of collecting, presenting, and measuring facts based on time, cost, and further accomplishing all measures as per a particular plan; is termed as Line of Balance LOB. It states different aspects related to project activities such as status, process, timing background, phasing, etc.
Line of Balance is considered a graphical device through which a manager is able to view operational activities that are in-balance. For example, it overseas whether different activities that are supposed to be completed at a certain review time, are actually completed or not. It also checks the activities that are running behind the schedule. The line of Balance technique is based on manual planning and scheduling.
It is useful in determining the process of production on the percentage basis of completion of tasks. It is mainly utilized where large batches are there of complex items that require a lot of operations and need to be finished over a certain time.
To level the workload in all operations in a manufacturing unit in order to demolish excess capacity or any bottlenecks is termed as line balancing.
The line consists of different work stations of different tasks. Line balancing is considered a useful tool in production and operations management. This strategy stretches the production lines so that both internal and external indiscretion can be absorbed. Each machine at these workstations can produce items, items, and items in an hour at a, b, and c workstation respectively.
In a case where each machine is supposed to produce only items in an hour, then, idle machines would be a and b and these machines have to be idle each hour for 30 and 15 minutes respectively. This type of layout is called an unbalanced layout and balancing is required by the production line in such a situation. Inventory models are there to facilitate determining the right time to order and the right quantity to order.
Inventory is also termed as stocks of raw materials and goods. The inventory model is considered a mathematical model that businesses use to determine the optimum level of stocks inventory that is required to be maintained during the process of production. This also includes other activities such as decisions related to the quantity of raw materials or goods, management of order frequency, ensuring the flawless supply of the stock in order to handover uninterrupted goods or services to customers, and on-time delivery.
In this type of inventory model, once the level of inventory goes down than a re-set fixed quantity then an alarm is raised. To meet the demand and to achieve the optimum level of the inventory, new orders are generated. There is a Reorder point to order inventory for restoration. The quantity of inventory at this point is known as Reorder Level and the term Order Quantity is used for a new inventory-related quantity that is ordered.
To manage inventories, this inventory model system is utilized. In this system, after a fixed time period, an alarm is raised. Further orders are generated for the restoration of the inventory to obtain optimum level as per the demand.
Restoration of inventory is considered a continuous process as it is done in periodic intervals. As a result, advertising in general and brand building in particular are important to this strategy. Few goods are more basic and generic than table salt. This would seemingly make creating a differentiated brand in the salt business next to impossible.
Through clever marketing, however, Morton Salt has done so. Not a chance. Yet Morton succeeds in convincing customers to pay a little extra for its salt through its brand-building efforts. FedEx and Nike are two other companies that have done well in communicating to customers that they provide differentiated offerings. Based in Birmingham, Alabama, the firm has more than company-owned and franchised locations under its brand.
Express Oil Change tries to provide a unique level of service, and the firm is content to let rivals offer cheaper prices. Each generic strategy offers advantages that firms can potentially leverage to enjoy strong performance, as well as disadvantages that may damage their performance. In the case of differentiation, a key advantage is that effective differentiation creates an ability to obtain premium prices from customers Figure 5.
This enables a firm to enjoy stronger profit margins. Coca-Cola, for example, currently enjoys a profit margin of approximately 18 percent in early , meaning that about eighteen cents of every dollar it collects from customers is profit.
In turn, strong margins mean that the firm does not need to attract huge numbers of customers to have a good overall level of profit. Luckily for Coca-Cola, the firm does attract a great many buyers. This comparison of profit margins and overall profit levels illustrates why a differentiation strategy is so attractive to many firms Wikinvest, To the extent that differentiation remains in place over time, buyer loyalty may be created.
Loyal customers are very desirable because they are less price sensitive. Pepsi and other brands have a hard time convincing loyal Coca-Cola fans to buy their beverages, even when offering deep discounts.
In contrast, store-brand sodas such as Great Value sold at Walmart seldom attract brand loyalty. Rather, their desirability is based on cost leadership. As a result, they must be offered at very low prices to move from store shelves into shopping carts.
Beyond existing competitors, a differentiation strategy also creates benefits relative to potential new entrants. Specifically, the brand loyalty that customers feel to a differentiated product makes it difficult for a new entrant to lure these customers to adopt its product.
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