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From Mass Production to from Mass Production to Mass

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From Mass Production to from Mass Production to Mass European Mana gement Journal Vol. 14 No. 5 pp. 442-450 1996 ~ Pergamon Copyright © I990 Elsevier Science Ltd rinted in Great Britain. All rights reserved S0 2 63 -2 3 73 (9 6) 00 03 7- 0 0263-2373/96 I5.00+ 0.00 From Mass Production to MassThe Case Customization of the National Indust rial Bicycle Company of Japan SURESH KOTHA Assistan t Professor of Business Policy and Operations Mana gem ent Stern School of Business Ne w York University By means of a detailed study of the National customization, firms can produce enough variety in I n d u s t r ial Bicycle C o m p a n y o f J ap a n (NIBC), products and/or services so that nearly everyone finds Suresh Kotha examines the dynamics of imple- exactly what he or she wants at a reasonable price (Pine, menting mass customization in a firm that pursues 1993). both mass production and mass customization in two different factories. NIBC reaps superior return s According to Kotler (1989) the concept of 'mass market' b y e m p l o y i n g a s y s t e m w h i c h i n c r e a s e s i n t e r a c ti o n is dead and market segmentation has now progressed to b e t w e e n t h e m a s s production and mass custom the era of mass customization. Kotler and others argue f a c tories and encourages k n o w l e d g e c r e at io n . that firms operating in the current com petitive landscape can no longer produce standardized products or services The author then considers the m ost important for homogenou s m arkets and still command superior extern al (indu stry level) and internal (firm level) returns. In this context, mass customization represents conditions w hich are necessary to s u c c e s s fu l l y the 'new frontier' in a world of increasingly saturated p u r s u e m a s s c u s t o m ization, and points ou t t h a t t h e markets and sluggish growth in demand for many interactions and interrelatio n s h i p s b e t w e e n t h e m a r e manufactured products 0Nestbrook and Williamson, i m p o r t a n t to a successful outcom e t o o . C o p y r i g h t © 1993). 996 Elsevier Science Ltd The growing interest in mass customization has led researchers to sug gest that firms that shift from mas s ntroduction production to the emerging paradigm of mass customization will gain a competitive advantage. Mass customization as a viable approach to competitive Emerging literature on the topic suggests that mass strategy is capturing the imagination of both managers production and mass customization are fundamentally and business academics. The term 'mass customization' different and incompatible paradigms. Pine e t a I (1993), has been described as 'a world of paradox with very the key proponents of this view, note that mass practical implications' (Davis, I987). The concept is production and mass customization approaches require based on the notion of 'economies of scope' where different organizational structures, values system s, advances in manufacturing and information technology, learning method s, and ways of relating to custom ers as well as new management methods (e.g. JIT and lean (see also Kotha, 1994). production), enable firms to provide product variety and customization through flexibility and quick respon- Although this emerging literature on the topic is helpful siveness in ma ny industries. Em ploying mass in enumerating differences between mass production and 4 4 2 European ManagementJournalVo 4No 5 O ctober 1996 electronic circuit boards FROM MASS PRODUCTION TO MASS CUSTOMIZATION mass customization, we kn ow little abou t the dynamics to understand the industry conditions that NBIC faced of implementing mass customization in a firm that is during the 1980s and early 1990s. heavily dependent upon mass production. Based on an in-depth study of the National Bicycle Industrial Company (NBIC), I examine the dynamics of imple- Ch an gi n g I n d us try Con d i ti on s men ting mass custom ization in a firm that pursues bo th mass production and mass customization (Kotha and Bicycle producers in Japan can be subdivided into two Fried, 1993). By simultaneously pursuing b oth mass groups: manufacturers and assemblers. As their name production and mass customization, NBIC has denotes, the assemblers purchase all their components develop ed a system that it then exploits to reap from outside parts suppliers and only assemble the bicycles in their facilities. In contrast, m anufacturers andsuperior illustrate returns. the Imechanisms discuss NBIC the s firmcom haspetitive institut strateged toy design and manufacture impo rtant structural com pon ents link the two approaches. In doing so, the following that include the bicycle frames and front forks, but bu y question is addressed: What are the important external othe r com pon ents (e.g., pedals, wheels, and tires) from (industry-level) and internal (firm-level) conditions external suppliers. Historically, manufacturers accounted neces sary for successfully pursuing mass customization? for most of the bicycles prod uced in Japan. Starting with the 1980s, bicycle shipments were evenly split between the manu facturers and assemblers. NBIC and its pproach to Com petition Bicycles in Japan are distributed through wholesalers, retailers, supermarkets, and depa rtm ent stores. Th ere NBIC was Japan s secon d largest man ufacturer of were approximately 1,600 wholesalers and about 38,000 bicycles in 1992, with sales of nearly ¥20 billion. The retailers in 1 99 0. W hereas ma ny wh olesalers wer e firm manufactures and markets bicycles under three subsidiaries of leading manufacturers, such as Bridge- differe nt bra nd nam es: Panasonic, N ational, and Hikari. stone, M iyata, and N BIC, retail outlets, for the mos t part, NBIC targets each brand at a unique market segment, we re small family-ow ned stores. A ppro xim ately 60 per and together these three brands cover a wide spectrum cent of bicycles sold were transferred from wholesalers of bicycles sold by the firm in the Japanese Bicycle Indu stry (JBI). Tw o of these brands, Na tional an d Hikari, to retailers, while the remaining were distributed through supermarkets and department stores located form th e bulk of NBIC s prod uction and sales. The firm s throughout the various islands that constitute Japan. In mo st exp ensive line, Panasonic, acco unted for slightly the past, large com pany-o wned wholesalers dominated less than 20 per cent o f total production in 199 2. The the distribution of bicycles. Recently, sup ermarket chains executives at NBIC recognize that the firm is heavily and household superstores or home centers have dependent upon the mass market for the bulk of its started selling bicycles, thus enabling assemblers to gain revenu es and profits, and that this situation is unlikely to an increasing share of the industry. change dramatically in the near future. Durin g th e late 1980s, the bicycle indus try in Japan was The firm has two factories, one for mass production and maturin g rapidly. De man d was sluggish, and the ave rage the other for mass customization, located adjacent to unit price the customer was willing to pay for a each other . Initially con cep tualiz ed as a pilot plant, the standard bicycle was falling. As the dem and for bicycles mass-custom factory was built in 1987. Here the high- plateaued, there was increasing competition among the end, custom -made Panasonic bicycles are produ ced and manufacturers. To gain market share, manufacturing shipped to dealers for delivery to individual customers. firms such as Bridgestone and NBIC introduced In 1992, NBIC prod uce d 700,000 bicycles, 90 per cent of numerous new models. Although the average prices of which were produced by the mass-production factory and shipp ed to Matsu shita s (NBIC s parent corpo ration) sporting bicycles, the high-end market segment, were increasing, even this segment was not experiencing any sales subsidiaries. In contrast, only about 12,000 of these substantial increase in growth. bicycles were produ ced at the firm s mass-custom factory. M as s C u s tomi zation at N IC The majority of the firm s 470 w orkers worke d in the mass-production factory. Of these, slightly mo re than 66 It was und er such indus try cond itions that NBIC s per cent are classified as direct or line workers and the Ma nagin g Director, Hata, along w ith the firm s president, rest as indirect workers. O nly a few (about 18 wo rkers in decided that it was time to rethink NBIC s strateg y. The 1989) of NBIC s best skilled line wo rkers p rodu ce the firm then em barked on the p ath to conceptualize, develop custom-made Panasonic bicycles at the mass-custom and implement an innovative approach to competition. factory. Operating on a single-shift basis throughout the Am ong othe r things, NBIC s managers wanted a system year, these highly skilled workers produce a small that wo uld help the firm increase its m arket share in the fraction of the firm s total bicycle produc tion.
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