Section 12 Economics Overview

Mass Customisation is a powerful idea taught at leading business schools across the World. A century ago, economies of scale in Manufacturing Processes brought down the price of mass-produced goods to the extent that customers were willing to trade-off their individual preferences for a cheap but standardized mass-produced good (HBR 1997). Nowadays, new forms of organisation and technology are radically reducing this trade-off between individuality and cost (Lewis and Slack 2002). Thus enabling Mass Production of Customised Goods/Services, so called “Mass Customisation”.

To quote:

“As the concept of a mass market gained currency a century ago with the success of such giants as Sears, A&P, Coca-Cola, and Ford, all too many managers lost sight of a simple fact known for ages by every butcher, cobbler, and corner grocer: every customer is unique. Economies of scale in manufacturing and distribution brought down the price of mass-produced goods so much that all but the most well-to-do customers were often willing to forgo their individuality and settle for standardized—but very affordable—goods.”

— Harvard Business Review (HBR (1997))

The key idea is to use customisable technology. This means each individual order is produced by technology customised to the customer’s individual needs. In the traditional approach all orders for a given product are produced using the same technology. As we’ll see below, this massively increases the influence of performance trade-offs and meeting the customer’s needs becomes a compromise.

References

HBR. 1997. “The Four Faces of Mass Customisation.” https://hbr.org/1997/01/the-four-faces-of-mass-customization.

Lewis, Michael, and Nigel Slack. 2002. Operations Strategy. Prentice-Hall.