mass customised distribution

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Int. J. Production Economics 114 (2008) 71–83

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Mass customised distribution

Robert Masona,�, Chandra Lalwanib,1

aLean Enterprise Research Centre and Innovative Manufacturing Research Centre, Cardiff Business School, Aberconway Building, Colum

Drive, Cardiff, Wales CF10 3EU, UKbUniversity of Hull Logistics Institute, Business School, Hull HU6 7RX, United Kingdom

Accepted 11 September 2007

Available online 29 February 2008

Abstract

This paper introduces, defines and explores a new term, mass customised distribution. Mass customised distribution is

all about the logistics support for the supply chain (irrespective of the nature of production). It identifies the under-pinning

principles behind mass customisation, such as the use of economies of scope rather than scale and the importance of

modularisation and standardisation and then translates these constructs onto distribution related activities. A categorising

typology of the mass customised distribution concept is then provided based on time, space, information and process

constructs supported by discussion and examples. The trade off between the opportunities to reduce asset costs through

economies of scope versus the need for distributors to remain customer focussed in terms of offering better overall value is

then explored.

r 2008 Elsevier B.V. All rights reserved.

Keywords: Mass customisation; Distribution; Logistics; Supply-chain management

1. Introduction

The business environment is becoming increas-ingly competitive as supply-chain business custo-mers’ expectations ratchet ever upwards and thecapability of competing companies to deliver con-sistent quality at low prices continues to develop(Christopher, 2004). In response, many organisa-tions have, over the last two decades, pursued analternative strategy to mass production defined asmass customisation (Davis, 1987). This is a process

front matter r 2008 Elsevier B.V. All rights reserved

e.2007.09.013

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sses: [email protected] (R. Mason),

l.ac.uk (C. Lalwani).

82463049; fax: +441482463484.

by which firms ‘‘produce customised goods for a mass

market’’ (MacCarthy et al., 2003) by applyingadvances in information communication technology(ICT) and flexible work processes to permit them tocustomise goods for individual customers at arelatively low cost (Gilmore and Pine, 1997).However, although mass customisation is a broadgeneric term it has centred predominantly on thecustomising of production: manufacturing goods inan efficient manner tailored to the needs ofindividuals or tightly defined segmentation groupswith common requirements for the product. Thispaper argues that to complement this need for moretailored yet cost efficient solutions, firms are alsoconsidering the consumption experience and turningthe distribution activity into a more efficientcustomer orientated process as well. Importantly,

.

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ARTICLE IN PRESSR. Mason, C. Lalwani / Int. J. Production Economics 114 (2008) 71–8372

this may be regardless of any product customisationthat may occur. But, this invariably cannot beprovided at a price premium; ‘‘at every step in thecreation of value, competition is fierce’’ (Fulleret al., 1993). To remain competitive, it ideally has tobe achieved at little or no extra cost and with nonegative impact on margin. This characterises theproblem that the mass customised distribution(MCD) concept seeks to address. How can thescale economies of distribution be retained or evenenhanced in the logistics model through economiesof scope, while effectiveness is improved by meetingthe customers’ needs better?

The paper’s purpose is therefore to develop amore sophisticated understanding of a new term wehave labelled MCD. It will explain how MCD isdefined, how it differs from mass customisation andhow MCD strategies are being adopted in manysectors to meet modern markets demand forefficient yet more effective supply-chain distributionsolutions. Forms of MCD are categorised in atypology based on time, space, information andprocess constructs. Each is supported with examplesfrom numerous sectors before conclusions arereached.

2. Definitions

As a foundation to the arguments developed inthis paper, a few key terms need to be clearlydefined. Firstly, it is important to distinguishbetween two different types of ‘‘customers’’ thesupply-chain serves, end-consumers and businesscustomers. The end-consumer is the purchaser ofthe product or service at the end of the chain ofsupply and is arguably the most important determi-ners of who wins or loses in the competition tosupply. Business customers are the participantcompanies positioned along the chain of supplyeach of whom demand value from their supplyingorganisations.

Secondly, it is important to distinguish betweenproduction and distribution. From an economicstandpoint, value or usefulness of an item is derivedfrom its utility. Three of the most important formsof utility are: form, time and place. Form utility isthe process of creating a good or service, or puttingit in a form for the customer to use. When Nestletransforms raw materials into a chocolate bar, formutility is created. Time utility is the value added byhaving an item when it is required. This can be abusiness customer who may require a delivery to

arrive just-in-time, or an end-consumer who needsan item to be available at their chosen shoppingtime. Finally, place utility means having the item orservice where it is needed. These definitions of utilityhelp us to distinguish between production anddistribution and the definitions for mass customisa-tion and MCD. Form utility is generally part of theproduction process, while time and place utility areintricately linked to distribution activities (Lambertet al., 1999). Ganeshan and Harrison (1995) providea useful definition of the supply chain which clearlyidentifies production and distribution focused activ-ities and delineates between them: a supply chain is‘‘a network of facilities and distribution options thatperforms the functions of materials procurement,transformation of these materials into intermediateand finished products (we have termed collectivelyas production), and product distribution to custo-mers’’.

Finally, two types of size economies, economiesof scale and economies of scope, need to bedistinguished from one another. Economies of scalerefer to size economies gained by generating morevolume of a product in the same value streamthrough a fixed asset. Examples of this might be aproduct promotion, which increases sales thusallowing the fixed costs per item to be reduced.This is the principle that has under-pinned much ofthe developments attributable to mass production(for example focussed factories) and mass distribu-tion (for example, bulk shipping). Economies ofscope are also a size economy, but are importantlyslightly different, as they are generated by routeinggreater volumes of compatible products through afixed asset by merging parallel value streams.

3. Mass customisation

Creating variety in manufacturing processesrequires flexibility in manufacturing processes,the very antithesis of Mass ProductionyThe production system must therefore be chan-ged. (Pine, 1993, p. 46)

Davis (1987) first coined the concept masscustomisation as a generic term to cover the wholearray of ideas and elements in a holding firm whichthought about the end-consumers needs and wantsbackwards in determining supply design, ratherthan thinking of production out to the customer, ashad traditionally been the case in mass production.Concepts such as time-based competition, manufac-

ture at the point of delivery, customer self-design and

ARTICLE IN PRESSR. Mason, C. Lalwani / Int. J. Production Economics 114 (2008) 71–83 73

direct access, modularisation, zero inventories,

shrinking overheads, declining need for working

capital, enhanced logistics, info-mediation, and elec-

tronic value chains, he argued, were all elements ofthe mass customisation family.

Following this broad inception of the term masscustomisation no single view of mass customisationhas emerged (MacCarthy et al., 2003). Most writersimplicitly have concluded that mass customisation ispredominantly about manufacturing: the costs ofproduction can be reduced by sharing core mod-ularised forms across a range of products, whilegreater product customisation can be attained bypermitting customer requirements to penetrate upthe chain of supply before differentiation of theproduct is started. Thus, form utility is enhanced,but yet at a more competitive price. Pine (1993)defined mass customisation as, ‘‘the cost-efficientproduction of goods and or services tailoredtowards an individual customer’s needs’’. Ross(1996) described a spectrum of categories whichcharted the degree of customisation ranging from‘‘cosmetic’’ to ‘‘core customisation’’, although hedid include customisation by increasing the range ofstores in discussing the criteria to mention thedegree of customisation. Lampel and Mintzberg(1996) asserted that the customisation of theproduct could occur at various stages along thevalue chain, such as design to order or assemble toorder. Alford et al. (2000) distinguished betweencore, optional and form customisation in relation tomass customised strategies in the automotive sectorand although they argued that form customisationdoes occur at the distribution stage this was stillconcerned with changing the ‘‘form’’ of the pro-duct—an example of delayed production. Even inGilmore and Pine’s (1997) ‘‘four approaches tocustomisation’’, two of which did not mentionproduct customisation as a distinct focus, acustomised distribution solution was not evident.Where customisation was categorised with ‘‘noproduct change’’ this was either labelled as ‘‘cos-metic’’ (a customised package) or ‘‘adaptive’’ (aproduct which can change, post purchase, its usedepending on the customer’s wishes, such as moodlighting). Therefore, although when Pine (1993)talked about customising the ‘‘production system’’this may have included a broader definition ofproduction to include distribution activities, thevast majority of authors who have written in thisarea have explored issues associated with the masscustomisation of the product rather than the

distribution system. This gap sets the scene for thefocus of this paper; defining and exploring a conceptthat can be seen as complementary to masscustomisation—this can be termed as MCD.

4. MCD

Fundamentally, the business climate encounteredby the distribution entities of the industrial system isno different from those encountered by the produ-cers. The imperatives of customer service and costefficiency have prompted companies involved indistribution activities to change their strategies andlogistics organisation (Groothedde et al., 2005). AsChristopher (2004) points out the whole businessenvironment is becoming increasingly competitiveas supply-chain business customers’ and end-con-sumers’ expectations ratchet ever upwards and thecapability of competing companies to deliver con-sistent quality at low prices continues to develop.This manifests itself in the specific challenges thatdistribution faces, such as the incessant need toreduce the costs of distribution while coping withmore exacting logistics demands which may include:delivering to increasingly fragmented points ofdemand, delivering to tighter delivery windows,becoming more reliable in terms of delivering ontime in full, distributing more frequently in smallerquantities, providing distribution solutions overextended distances, working on smaller planninghorizons, distributing a larger variety of products orcoping with fluctuating demand for distributionservices in the short, medium or longer terms. Justas mass customisation has provided solutions toaddress the production challenges, MCD solutionsare being adopted by distributors to help tackle thelogistics challenges.

Indeed, MCD is all about the logistics support forthe supply chain (irrespective of the nature ofproduction) and aims to provide more efficient yetmore flexible and customer focussed distributionsolutions. It is in contrast to the concept of massdistribution—the shipping of bulk amounts ofproduct, usually at the behest of the supplier, witha focus on vehicle fill rather than on customer pulleddistribution solutions. Examples could include, bulkshipping by various modes of transport. MCD is ageneric term that covers a wide range of distributionconcepts building on the same principles espousedas under-pinning mass customisation. It useseconomies of scope, rather than economies of scaleto contain costs while being highly focused in


providing distribution solutions demanded by re-ceiver led supply chains. Economies of scope indistribution terms dictates that distribution activ-ities are not solely focussed on one supply chain butrather on many supply chains. This is invariablyenabled by modularisation and standardization,which permits parallel supply to integrate acrossvalue chains. The greater the economies of scope thegreater the potential cost savings, as we will nowexamine.

5. Economies of scope not scale

In mass customisation, Pine (1993) argued:‘‘Economies of scale are gained through thecomponents rather than the products; economiesof scope are gained by using the modular compo-nents over and over in different products; andcustomisation is gained by the myriad of productsthat can be configured’’. For instance, in carmanufacture, from a modularised chassis platforma wide range of customised shapes of car can bebuilt sometimes across brands within the holdingcompany, such as Skoda, Seat and VW cars withinthe VW Group. By identifying potentially modularcomponents across a product range and standardis-ing those, considerable savings can be made, the sizeof the savings largely being related to the number ofproducts the modularised components can beapplied to. This thinking leads to lowering coststhrough the economies of scope and how they arecombined to make different products is the key tocustomisation.

This same thinking can also be employed indistribution activities such as warehousing, freighttransport and retailing. Traditionally, these func-tions have relied on economies of scale to beefficient and have been incentivised accordingly.Thus in freight transport a full pay-load is soughtfrom a supply-chain partner. While controlled bythe mass producing supplying partners this may bewhat had been required—large production batchesshipped in bulk to the next supply-chain customer.However, in many supply chains today, includingsome which are led by supply-chain customers andthe end-consumer, the requirement to tailor ship-ments to what is demanded and pulled rather thanwhat has been forecasted and pushed through thesupply chain becomes greater. Compared withpushed supply, the characteristics of leaner (Wo-mack and Jones, 1996) shipments of pulled productsare invariably smaller in volume and the pattern of

demand may be more variable and volatile, puttinggreater strains on the transportation process. Leadtimes may also be tighter than in traditionallyorganised mass distribution. Thus, in many sectorspressures are being placed on distribution functionssuch as transport requiring them to be more processorientated and able to deliver freight in the volumedemanded, at the time required but at no extra costthan traditional freight movements (if anything atcontinuously lower costs). In essence, the challengefor MCD is:

Instead of the supply chain being designed tosupport the optimal production and distributionof Mass Production through Mass Distribution,its orientation is reversed and must be set up tooptimally serve the niche segments of demandrequired in customised marketsy the aim is tofacilitate product supply so that the customer canorder it and access it in a wide variety ofsituations, while efficiencies are maintained.(The authors)

Modularisation in distribution and the standar-disation of these module components allows parallelsupply chains to be combined together so thateconomies of scope can be better realised. Examplesof modularisation include trays, pallets, containers,flexible vehicles capable of hauling a variety ofdistribution loads, multi-user warehouses, consoli-dation and distribution centres. Examples of stan-dardisation include compatible ICT platformsincluding scalable protocols, commonly recognisedproduct coding, standard operating codes for inco-terms or safety, standard dimensions for pallets andcontainers.

Beyond this Morash and Clinton (1997) notethat, ‘‘the standardisation of transportation andlogistics processes, practices and policies is animportant integrative capability’’. This supportsthe reliability and predictability of supply-chainflows allowing integration horizontally and verti-cally to be achieved more effectively without anexcessive number of steps in risk precautions, tobuffer against uncertainties, having to be built in, interms of time, labour costs, inventory, or equip-ment. Indeed, collaborative initiatives supportingthis enhanced integration are taking an increasinglyimportant role in optimising freight transport(Mason et al., 2007). Collaboration in logistics bothvertically with supply-chain partners and horizon-tally with other logistics providers, even sometimescompetitors, is, in our view, becoming more in


vogue. It is recognised by many that if value chainsare to be better integrated and assets more fullyutilised a new mind-set of more openness tointegrate and cooperate is demanded. Distribution,once viewed as discrete to the rest of the supplychain, needs to be understood and operated as anintegral cog in inter-linked value chains and supplynetworks (Ritter et al., 2004). This competitivesetting for effective transport and logistics opera-tions is increasingly being influenced by develop-ments in information communication technology(ICT) which is creating a new operational landscapefor collaborative logistics systems to improve thesustainable performance of transport by improvingefficiency in terms of fill rates, empty running andvehicle utilisation. The argument put forward is thatby partnering a competitive advantage can beachieved both in economic performance and custo-mer satisfaction and loyalty (Mentzer et al., 2000).This is illustrated in the case studies given in thefollowing sections.

6. Forms of MCD

MCD can be defined as,

the deployment of economies of scope ratherthan scale to deliver efficiencies in distributionactivities, while also ensuring that the totaldistribution solution is better tailored to thecustomer’s requirements

Like mass customisation, MCD can occur inmany forms. The common principle behind eachidea is deploying economies of scope rather thanscale to deliver efficiencies. Rather than justaddressing the optimisation of assets in a singlesupply chain, the optimisation of assets across anetwork can be aimed for (Nassimbeni, 2004).Additionally, the total distribution solution mustbe orientated back from the needs of the customerand be more closely tailored to their requirements.A typology for MCD can be drawn up based ontime, space, information and process constructs.Each construct that represents different ideas withinthe overall MCD family will be explored in turnwith short examples used to support each one.

6.1. Time-based MCD

Owning an asset carries an element of risk. If theasset is idle for a period of time there is a potentiallya wasted opportunity where it may have been

deployed for a financial return but was not.Distribution-based activities in general deploy manyexpensive assets; warehouses, transport vehicles,inter-modal interface assets such as ports andairports and equipment such as cranes, to namebut a few. Coupled with this issue of expensivecapital assets is the fact that demands for the use ofthat asset can be volatile and unpredictable iffocussed on one use, whether over the short,medium or longer terms. This may be because ofunstable end demand due to seasonal fluctuations,financial incentives and promotions, supply-chainamplification effects, economic cycles or otherfactors. Time-based economies of scope can becreated over a defined period to help mitigateagainst the risk of asset ownership. In essence thismeans sharing the use of a distribution-based assetover time across different supply chains. This maybe over a very short time period (an hour, a day orweek) or longer period (by month or season orlonger). Clearly, the sharing of the asset over a timeperiod across two or more supply chains is moredesirable in terms of cost reduction than for theasset lying idle when not in use in its primarysupply-chain setting.

For example, a tractor on an articulated lorry(tractors are relatively expensive assets while trailersare relatively inexpensive) may be coupled to arange of trailers over a given time period. At RhysDavies, a regional logistics company in SouthWales, tractors are used on local jobs during theday and then over-night trunking work during thenights. This allows 24-h a day working for eachtractor rather than allowing them to be idle forparts of the day. Similarly, Jigsaw, a UK-basedhaulage consortium, flexes its work among itscustomers. In the fast moving consumer goodssector Jigsaw’s customers have very exacting deliv-ery standards: deliveries have to arrive within tightlydefined delivery windows and are required any timeday or night over 7 days of the week throughout theyear. Its customers in other sectors in GeneralHaulage markets such as for kitchen or bathroomequipment have more relaxed delivery requirements:anytime on a prescribed day, only during thedaytime and only on Monday–Friday basis. As wellas weekends these customers are also closed downperiods at Easter, Christmas and holiday periods.By combining distribution solutions across thesetwo different sectors expensive tractor assets areutilised 24 h a day, 7 days a week and throughoutthe year (Naim et al., 2006).


6.2. Space-based MCD

As well as sharing the use of a distribution assetover time a spatial element to sharing can also beconceived where space is shared. This also invari-ably has some time element to it. For example, theUK-based shopping company Argos, part of theHome Group, for some years shared a warehousewith Nestle UK in Bardon Leicestershire who usedit to store long-life ambient foods. Indeed the wholeconcept of warehousing whether dedicated to oneuser or set up as a multi-user space are both MCDconcepts in that the fixed costs of the facility areshared across a large number of parallel valuestreams.

An extension of this is the in-bound consolidationcentre which has been developed in sectors such asthe grocery industry to more efficiently managesmaller more frequent transport flows from suppli-ers to the main warehouses or distribution centres.The less than full truck load supplies (less than 18pallets per load per day) from a regional group ofsuppliers are routed to a convenient local locationand consolidated into full truck loads for theonward trunking leg to the distribution centres.For example, Tesco have used this strategy, takingcontrol of the consolidation network in tandem withtaking responsibility to manage in-bound transportflows into their distribution centres saving millionsof pounds and from their distribution costs andreducing the total distance products travel betweensuppliers and stores by 23–25% (Potter et al., 2007).

Modularised distribution components can greatlyaid the sharing of an asset space. For example, thecontainer allows a wide range of different productsto be safely stacked together in container ships thelargest ones of which can now hold many thousandTEUs (20 foot container units). Similarly, com-monly sized pallets can be used to merge distribu-tion flows between different users and have led inrecent years (for example in the UK) to thedevelopments of pallet networks. Much work hasbeen done to push dimensions of these distributionmodules to common formats, not only withinindustries but also across sectors by bodies such asGS1 (www.gs1uk.org/home.asp). However, muchstill needs to be achieved in this area. For example,pallets for paper and chocolate are different thanthe more standard Euro pallet sizes, which frus-trates optimal sharing of warehouse racking spacein companies such as Nestle (general goods andchocolate) and Spicers (general goods and paper).

Finally, another of the main barriers to the shareduse of distribution-based asset space is the attitudeof companies towards collaboration horizontallywith complementary even competing companies.Many companies are reluctant to consider sharingdistribution assets due to fears of loss of control,stock integrity or sensitivity of commercial issues.There are however, examples where this has beenovercome. Waller and Geldard (2006) cite aconsolidation centre in Holland that serves twoindependent manufacturers (Lever Faberge andKimberley Clark) with consolidated deliveries toretailer distribution centres and two competingBritish dairy companies (First Milk and DairyFarmers of Britain) who have established fleetpooling collecting 4.5million l of milk from 7500farms.

Benefits of horizontally collaborating over dis-tribution space as well as reducing costs by betterwarehouse or fleet utilisation can also includeservice benefits such as an ability to increasedelivery frequency which in turn can support lowerinventory and fewer out of stock occurrences. Inaddition, as companies become smarter at under-standing the wide range of situations and circum-stances where demand for the same product mightoccur, the need for smarter distribution solutions tocater for this variety has become more accentuated.From a shared warehouse space, more bespokedeliveries can be made: for example, supplying awider range of neighbourhood stores, vendingmachines or home delivery options.

6.3. Information-based MCD

Increasingly, a key element of any distributionsystem is the information system, which supports it.Here again elements of the information system ordata derived from it can be shared across parallelsupply chains for mutual benefit. An example of thiskind of sharing is an open telematic systemdeveloped by RoadTech, a UK-based technologyfirm, which supports the haulage industry. Thevisibility of the transport operation has been greatlyenhanced in recent years by the introduction oftelematics. However, what had frustrated thecustomers of transport was the necessity to accessa number of telematic sites to gain an accuratepicture of their fleet at anyone time as each haulierhad develped its own telematic system. RoadTech’snew open telematic Internet-based system meetshaulage tracking needs and was created for three

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Table 1

Value-adding activities undertaken at Rotterdam’s Distri-Port

split into mass customised and mass customised distribution

activities

Mass customisation

activity

Mass customised

distribution activity

Value adding

activities at

Rotterdam’s

Distri-Port

Assembling Stuffing

Product assembly—

e.g. the putting

together of computers

Stuffing is the filling

up of a container

(applicable to mass

customised

distribution when

product in parallel

supply chains are

merged)

Packaging Stripping

For example putting

shoes in boxes

Stripping is the

emptying of a

container (applicable

to mass customised

distribution when

product in parallel

supply chains are de-

merged into multiple

shipments)

Labelling Groupage

For example, adding

instructions for use in

the language of the

country the product is

bound for or putting

price tags onto

clothing

Groupage is the

combining of multiple

shipments into one

shipment

Testing Degroupage

Products are tested

based on the quality

requirements of the

customer. An example

is the testing of

monitors

Degroupage is the

splitting up of a

shipment into multiple

shipments

R. Mason, C. Lalwani / Int. J. Production Economics 114 (2008) 71–83 77

leading grocery manufacturers who collaborativelyunited to commission the system. Although hostedas a common platform able to monitor up to half amillion jobs at a time every 5min the visibility of thedata it provides can also be customised to the needsof each user. As well as supporting on time deliverythrough enhanced visibility it also has the potentialto encourage better fleet asset utilisation matchingspare vehicles with loads across the collaborativenetwork. For instance, a haulier can identify whichvehicles are due to run empty or can find a vehicle.The more companies that join the network thegreater the potential in load consolidation andempty running reduction.

Another example of economies of scope derivedfrom sharing information is the collaboration oftwo competing brewers (Scottish Courage andCarlsberg Tetley) who using common barrelsidentified with RFID tags have set up consolidatedoutbound deliveries (Waller and Geldard, 2006).

6.4. Process-based MCD

Finally, process considerations include the appro-priate location of distribution decoupling points,where transport loads are reconfigured from massmovement to customised movement and vice versa.De-coupling the supply chain has become a keyconcept synonymous with mass customisation.Lampel and Mintzberg (1996) claimed in their‘‘continuum of strategies’’ that this point markedthe process where the goods were customised to theorder of the customer. This fits in with the conceptof the adoption of a mass customisation strategythat leads to the customisation of the product.Strategies such as design to order, or assemble toorder, among others, can be selected depending onhow far the customer request penetrates up thevalue chain.

However, the decoupling point can also be thepoint where customisation of the distribution ratherthan of the product occurs. The customising can bejust in distribution not production terms. The de-coupling point in this instance marks the pointwhere bulk flows of pushed goods are replaced byflows pulled to a specific customised location withno customisation of the product necessarily occur-ring.

The activities of Rotterdam’s Distri-Port a ware-housing complex which has developed as a naturalde-coupling point at the interface of transportmodes can be used to distinguish between mass

customising activities (those that affect the product)and MCD activities (where the product itself isunaltered but where a value-adding process stilltakes place) (Table 1).

The decoupling point in MCD can be exploredfurther. The ideal strategic location for the decou-pling point has been shown to be influenced by arange of factors (Olhager, 2003), but one of the keydeterminants of the position of the de-couplingpoint is understood by exploring the fundamentalconcept of the ‘‘P:D ratio’’, introduced by Shingo(1981). ‘‘P’’ and ‘‘D’’ both refer to lengths of time,where ‘‘P’’ is the production and distribution lead


time and ‘‘D’’ means the time the customer isprepared to wait for their desired product. The ratio‘‘P’’ divided by ‘‘D’’, where it equals to one, wouldindicate the furthest point upstream from thecustomer where the de-coupling point could belocated. Clearly, both the ‘‘P’’ lead time (the time ittakes to order, produce and distribute a product),determined by the supply-chain enterprise, and theacceptable delivery lead-time, determined by thecustomer, are independent variables. However,both, to some extent, can be manipulated. Theproduction lead time can be influenced by the speedof order processing, the degree of assembly requiredwhich can be compressed by deploying a masscustomising strategy through modularisation andde-coupling the total production process, and/orleaning up the production and distribution process.Similarly, the acceptable delivery lead-time can beinfluenced by for example providing electronicshopping mediums so that the goods can be selectedand paid for away from the shop preventing thepossibility of the customer requiring immediatereceipt of the goods, thus in effect manipulatingcustomer demands.

Products are made to order (MTO) where theycan be produced and distributed faster than thecustomer allows for delivery, or made to stock(MTS) where production and distribution wouldtake longer than the customer is prepared to wait.There is obviously also a middle ground, as we havediscussed, where the production process, or thedistribution process, is broken and a de-couplingpoint is introduced. Thus a spectrum of variousalternate MTO strategies through to a MTSstrategy where the customer selects the productfrom a supermarket can be envisaged similar to the‘‘continuum of strategies’’ of Lampel and Min-tzberg (1996) discussed above.

An important issue to consider is to examine howthe decoupling point can be conceived differentlydepending on who is perceived as the customer. Ifthe customer is the end-consumer the ‘‘D’’ time isclearly determined differently than if the customer isa business customer. As we will see in the workedexample below this can mean that a supply chainhas more than one decoupling point.

To conceive the decoupling point as always beingthe point where goods can be customised in terms ofproduct customisation or distribution customisationis not correct. In fact, the decoupling point asdefined as the ‘‘order penetration point’’ (Olhager,2003; Hoekstra and Romme, 1992) need not be the

point where goods are customised. This thinking isakin to the idea of conceiving the point as theinformation decoupling point (Mason-Jones andTowill, 1999). It is solely the point where push isreplaced by pull regardless of whether customisa-tion has taken place or not. So the informationdecoupling or traditional decoupling point fallsclearly within the MCD family and does notnecessarily have to be conceived as the point ofproduct customisation akin to mass customisationthinking. Although the customising of goods (masscustomisation) can occur at this point it can alsooccur at a point or points further downstream ofthis point. Indeed, differentiation activities, whetherthey are product customisation activities (masscustomisation) or distribution-based customisation(MCD) can also occur at a number of pointsdownstream of the information or principal decou-pling point.

In conclusion, in a process sense, MCD is thepostponing of the point or points of the customisingof distribution while mass customisation is thepostponing of the point or points of productcustomisation. This thinking widens the scope ofstrategic options available to the supply-chainenterprise(s) in assessing their options.

A separate type of decoupling can also beconsidered where the process of supply is itselfdecoupled into two or more separate yet essentiallyparallel chains of supply. This decoupling of typesof demand for the same product can be termed as‘‘base and surge decoupling’’. Gattorna and Walters(1996) noted that in many instances overall demandcannot be accurately forecasted especially wherethere are long times involved and/or because of asizable influence of random forces (i.e. predictablepatterns of season or trend are not sufficientlyexplanatory). They suggested splitting the forecastfor a product into demand, which can be safelypredicted, ‘‘base’’ and demand where forecasting ismore problematic, ‘‘surge’’. Christopher and Towill(2001) developed the idea but again providedproduction-based examples—Zara, Benetton andNational Bicycle. This strategy can also be used in apurely distribution activity as illustrated byGroothedde et al. (2005). They illustrated that evenin the fast Moving consumer goods industry thepredictable base element can be planned well inadvance and consequently more sustainable trans-port modes such as barge, or rail can be deployed,with economies of scope achieved from ensuringflows from parallel value streams are attracted to fill


the available space of the transport asset. Theremaining more unpredictable surge requirementsof the same product can then be distributed in amore responsive format, such as by road on ashorter lead time when exact orders can bedetermined.

7. Discussion

As Fuller et al. (1993) highlighted, ‘‘at every stepin the creation of value, competition is fierce’’.Clearly, the customer wants value to be maximised,but this may not just be derived from lower costs. IfJohansson et al.’s (1993) ‘‘customer value criteria’’are assumed it can be seen that value is built up of anumber of facets—quality, service, cost and cycletime. Ballou (1999) maintains that from a logisticspoint of view, customer service is the outcome of alllogistics activities or supply-chain processes. So insimple terms, if Johansson et al.’s (1993) quality,service and cycle time criteria are merged as onecategory—how can effectiveness be improvedthrough service differentiation—a two dimensionalvalue equation can be used to position successfulMCD activities: value ¼ service differentiation en-hancements versus costs improvements (Table 2).

Being more efficient and more effective shouldimprove value for the customer, but there can be aclassic conflict between cost and service (a reoccur-

Table 2

The four sourcing options for buyers and providers of logistics service

Low

CompetitiDistributio

Solution

UndevelopDistributio

Solution

Low

High

Level of Cost ReductionAchieved Through

Economies of Scope

Level of DediProvider

ring fundamental issue in logistics). In MCD, costcan be defined as the level of cost reduction achievedthrough the deployment of an asset sharing strategyand achieving economies of scope, while servicedifferentiation refers to enhancements in perfor-mance in other areas than cost reduction; forinstance from improved flexibility, higher qualitylevels, enhanced adoption of technology leading totighter lead times and/or more reliable, predictableand sustainable distribution performance.

Using these two criteria, a summary table can beproposed to help categorise MCD solutions againstother types of distribution structure (Table 2).MCD occurs where there is an element of assetsweating through a multi-user approach and ex-ploitation of economies of scope to reduce costs, yetan ability to hone in and sustainably achieve valuefocussed distribution that may be demanded indimensions other than just cost reduction. Bycontrast where economies of scope are focussedupon, but service levels are seen as not as criticalthis can be described as a competitive distributionsolution. Over sweating the assets although leadingto enhanced efficiencies can result in poorer servicewhich can compromise a strategy that relies on justin time delivery and reliability of logistics perfor-mance; where service levels are high but littleattempt to explore and take up opportunities todeeply assets across parallel value streams this is

s

High

ve n

MassCustomised Distribution

Solutions

PremiumDistribution

Solution

ed n

cated Service the Logistics Gives to its Customer

ARTICLE IN PRESS

Table 3

The four sourcing options for buyers and providers of logistics services

Low

- Pallet Networks - 4PLs ideal - Logistics Partnerships e.g. Jigsaw - Factory Gate e.g.Tesco - End to End Supply Chain Service e.g. door to door container shi pping)

- Container Shipping (port – port) - General Haulage

- Dedicated 3PL Contract - Construction Logistics - Bulk Shipping

Low

High

Level of Cost ReductionAchieved Through

Economies of Scope

Level of Dedicated Service the Logistics Provider Gives to its Customer

High

R. Mason, C. Lalwani / Int. J. Production Economics 114 (2008) 71–8380

termed as premium distribution solutions. Finally,where a distribution service has neither developedthe economies of scope nor is achieving high servicelevels this is termed as an undeveloped distributionsolution. Table 3 provides selected examples in eachof the four categories.

MCD challenges the thinking that just optimisingthe assets in a single supply chain is enough. AsNassimbeni (2004) proposes the optimisation ofassets used in a supply chain across the networkshould be the goal. MCD strategies are helpingsupport companies overall competitive strategiesallowing them to reduce costs in the distributionactivities as well as support service differentiation,supporting more bespoke delivery requirements tobe effectively achieved. This is important becauselogistics has become central to many companiesstrategies because all products are not just ‘‘things-with-features but are things-with-features-bundledwith services’’ (Fuller et al., 1993).

This challenge between the trade off of cost andservice is key to understanding how value fromdistribution-based activities can be better optimised.The solution needs to be contingent to the supply-chain strategy (Fisher, 1997). In essence what isrequired is flexible logistics where the distributionsolution can be flexed dependent on the needs of themarketplace and the supply-chain strategy. Bydeploying MCD, logistics entities can support morefully the improved flow of pipelines and tightinventory stock holding that are the hallmarks of

advanced supply-chain management practice. Inte-grated transport, load sharing, multi-user ware-housing, fleet pooling, shared equipment use, openinformation systems and so on all should beconsidered by distribution entities wishing to reducecosts through sharing asset utilisation. To betterrealise this, a new mind-set towards horizontal andvertical collaboration may need to be taken.

One of the groups of logistics companies whichhave sought to exploit this are the service integra-tors such as the parcel carriers, pallet networkoperators and so on (Mason et al., 2007). Bymerging together product flows across parallelsupply-chains economies of scope can be achieved,while customised distribution solutions are pro-vided. These integrators are growing in importanceand seeing in many cases considerable growthrecords. For example, the pallet networks in theUK have grown rapidly since their inception in theearly 1990s. Ten networks currently operate with anightly throughput of around 5000 pallets (DfT,2005). They create and exploit a single point ofcontrol for the whole operation with a modularpallet system, which allows a high level of customi-sation and service while efficiencies are managedthrough economies of scope. Haulage companieswho join a network mutually benefit from collabor-ating in the consortium but have no need tointegrate their business with other hauliers otherthan through the pallet network coordinator. Palletsare picked up from local suppliers, consolidated for


a region, shipped to a central distribution hub,before being re-allocated to their end destinationwhere the reverse process of trunking, de-consolida-tion and final delivery is followed. Their success ispartly attributed to being able to efficiently handlethe small but frequent loads required for leanproduction (Semple, 2003), thus supporting reducedinventory levels especially at customers.

Finally, there is currently a debate in the logisticsindustry whether third party providers are wellplaced to manage the full exploitation of assetsassociated with transport and distribution either.Transport is an asset intensive industry in that itfrequently involves highly intensive capital outlayswhich to be optimally exploited need to be sharedacross many customers. This is especially so ininternational transport movements where shippingor airline owners control assets which only specia-lists would be able to operate. Even in domestichaulage the cost of a freight vehicle, and theimportance of ensuring that it is fully exploited,dictates again that this usually has to be provided bya specialist provider such as a 3PL. Many retailers,manufacturers and even logistics companies do notwant to tie up capital in such assets especially iftransport is not seen as a core area of expertise. Thishas given rise to the fourth party logistics provideror 4 PL. In not owning assets themselves, theirpurpose is to ensure a more optimal use of thesupply-chain network ensuring activities such astransport are procured at a rate for a specific jobrather than paying for a dedicated vehicle whether itis deployed or not. A successful deployment of this

Mass Customised Production

Mass Customised Distribution can co-Production, but can also be adopted ind

Customised production and Mass Custenvisaged as strategic options within th

Mass Custom

Fig. 1. Mass customisation incorporating mass customise

was achieved by Tesco in moving to their factorygate pricing initiative (Potter et al., 2007). A similarmove is currently being made with Corus who haveawarded a contract to TDG to begin a 4 PLinitiative for UK steel movements from autumn2006 (Motor Transport, 2006). Consequently, weare witnessing a range of initiatives invariablysupported by advances in ICT, which are enablingmore sophisticated ownership frameworks andorganisational structures and MCD solutions.

8. Mass customisation and MCD

A case for a separate form of mass customisationwe have termed as MCD has been presented.Previously, most authors when researching masscustomisation have explored issues associated withthe mass customisation of the product rather thanthe distribution system. Rather than be categorisedas mass customisation, as it has in this paper, thiscan perhaps be termed as a form of masscustomisation and more accurately and preciselynow labelled as mass customised production. Alongside, this can be positioned MCD. Both masscustomised production and MCD can exist aloneor can complement one another. The overallumbrella category of mass customisation can nowbe envisaged to cover both ideas, as each aims toaddress broadly similar challenges: how can a moredemanding marketplace be served better with morebespoke solutions, while the economies of the massmarket are retained (see Fig. 1). In summary, how

Mass Customised Distribution

exist with Mass Customised ependently. Together Mass

omised Distribution can bee Mass Customisation family

isation

d production and/or mass customised distribution.


can supply effectiveness be enhanced withoutcompromising on efficiency?

9. Conclusions

The concept of mass customisation—‘‘producing

customised goods for a mass market’’—(MacCarthyet al., 2003) has been discussed and debated foralmost 20 years. The term was first coined by Davis(1987) and was popularised by Pine in his book‘‘Mass Customisation’’ in 1993. Mass customisationwas centred primarily on the product and thesystems of production and less on the structureand process of distribution. This paper focused onthis shortfall and identified and explored a newrelated concept to mass customisation we termedMCD. The requirement for and underlying princi-ples of both mass customisation and MCD areintrinsically generic. However, it has been arguedthat a more sophisticated understanding of ‘‘MCD’’and how it can be further exploited by firms tosupport enhanced value delivery needs to bedeveloped. A categorising typology of the MCDconcept has been provided based on time, space,information and process constructs supported bydiscussion and examples from various industrysectors. It has been argued that an overall umbrellacategory of mass customisation can now beenvisaged to cover both the ideas of mass customi-sation of the intrinsic product and the masscustomisation of the products distribution to thecustomer.

Organisations such as ECR Europe echo many ofthe key issues raised in this paper. In their transportoptimisation publication (ECR UK, 2004), theyhighlight four main areas where transport efficien-cies can be extended: backhauling—making betteruse of empty or lightly filled return legs, consolida-tion—the use of special centres discussed in thispaper to support the drip feeding of slower productsinto the regional distribution centres of the retailers,data sharing—of sales, stock holding and efficientunit loading—utilising transport space more effi-ciently. All these issues can be tackled by accom-modating a MCD strategy, which is increasinglybeing embraced by leading distribution relatedcompanies.

Finally, a number of inter-connected questionsare worth posing:

�
Are there lessons that may have been learnt inmass customisation in terms of modularisation
and applying economies of scope that may helpsupport more efficient and effective MCD solu-tions in the future?
� If distribution has been reoriented back from the
customer, to what degree is collaboration (Sima-tupang and Sridharan, 2002) required withsupplying organisations to overcome uncon-scious and dysfunctional behaviour by the down-stream players who may have a myopic view ofthe impact their decisions have on supplyingpartners?
� Is horizontal collaboration required to realise the
economies of scope?
� Does production have to respond to MCD? � Is a MCD approach always superior? If not in
what circumstances should it be deployed?

These are all matters that will underpin our futureresearch into this field. MCD offers great opportu-nities. If some customer segments can be servedbetter while not costing any more on the bottomline, market share improvements may be delivered.The logic may be to combine mass customisationwith MCD strategies—The logic suggests thatcustomers in being considered as a group to serveshould be broken down into more and moreappropriate segmented groups through which thetailored supply chain and production strategies andconsequent operations should be orientated to meeteach group’s specific requirements. However, inmany cases where this is appropriate change of thismagnitude could take some time to be accomplishedand will not be easy. It took over one hundred yearsfor mass production and supporting distributionsystems to evolve and the infrastructural investmentand supporting thinking will take decades todismantle and be replaced by mass customisationand MCD. Although much change in this directionhas occurred it will be some time before gains fromexploiting the ideas contained in this paper willdiminish.

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