Customization: Impact on Product and Process Performance

Manufacturing capability has often been viewed to be a major obstacle in achieving higher levels of customization. Companies follow various strategies ranging from equipment selection to order management to cope with the challenges of customization. We examine how the customization process affects product performance and conformance in the context of a design-to-order manufacturer of industrial components. Our competing risk hazard function model incorporates two thresholds, which we refer to as mismatch and manufacturing thresholds. Product performance was adversely affected when the degree of customization exceeded the mismatch threshold. Likewise, product conformance eroded when the degree of customization exceeded the manufacturing threshold. Relative sizes of the two thresholds have implications for the investments by firms to improve their customization capabilities. Our research presents a rigorous framework to address two key questions relevant to the implementation of product customization: (1) what degrees of customization to offer, (2) how to customize the design process.