Exhibit 2002
`Exhibit 2002
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`Int. J. Collaborative Engineering, Vol. 1, Nos. 1/2, 2009
`
`Mass customisation as a collaborative engineering
`effort
`
`Songlin Chen*, Yue Wang
`and Mitchell M. Tseng
`Advanced Manufacturing Institute,
`The Hong Kong University of Science and Technology,
`Clear Water Bay, Hong Kong
`Fax: 852 2358 0191
`E-mail: songlin@ust.hk
`E-mail: yacewang@ust.hk
`E-mail: tseng@ust.hk
`*Corresponding author
`
`Abstract: Mass customisation aims
`to deliver customised products
`with near-mass production efficiency. To simultaneously achieve customisation
`and efficiency, mass customisation requires collaborative engineering efforts
`between customers and manufacturers, who usually have different preferences
`concerning customisation. Collaborative engineering offers new methodologies
`and tools to address some of the inherent conflicts in mass customisation;
`reciprocally, mass customisation offers a realistic and promising test bed
`for developing collaborative engineering theories and technologies. This paper
`explores the synergies between these two fields of study, sketches out
`the scenarios of applying collaborative engineering in mass customisation,
`and points out some directions for future research.
`
`Keywords: mass customisation; collaborative engineering; synergy.
`
`Reference to this paper should be made as follows: Chen, S., Wang, Y. and
`Tseng, M.M. (2009) ‘Mass customisation as a collaborative engineering effort’,
`Int. J. Collaborative Engineering, Vol. 1, Nos. 1/2, pp.152–167.
`
`Biographical notes: Songlin Chen is currently a PhD candidate in the
`Department of Industrial Engineering and Logistics Management at the
`Hong Kong University of Science and Technology (HKUST). His research
`interest is focused on negotiation and auction theory and its application in mass
`customisation, engineering design, and supply chain collaboration. He holds
`a Bachelor’s Degree, 2001, in Aerospace Engineering from the National
`University of Defence Technology in China and a Master’s Degree, 2003,
`in Aeronautics and Astronautics from Stanford University in USA.
`
`Yue Wang received both his Bachelor and Master Degrees in Electronic
`Engineering from Peking University, China. He is currently a PhD candidate
`in the Department of Industrial Engineering and Logistics Management at the
`HKUST. His research interest is focused on mass customisation and product
`configuration system, artificial intelligence and its application in engineering
`design and manufacturing, etc.
`
`Mitchell M. Tseng is Chair Professor and Director, Advanced Manufacturing
`Institute of HKUST. He joined HKUST as the Founding Department Head
`of Industrial Engineering in 1993 after working in industry for two decades.
`
`Copyright © 2009 Inderscience Enterprises Ltd.
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`Mass customisation as a collaborative engineering effort
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`153
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`He held executive positions at Xerox and Digital Equipment Corporation
`as well as faculty positions at University of Illinois at Champaign-Urbana
`and Massachusetts Institute of Technology. He is an elected fellow of the
`International Academy of Production Engineers (CIRP) and American Society
`of Mechanical Engineers (ASME). He is widely recognised for his work in
`mass customisation and global manufacturing.
`
`Introduction
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` 1
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`Mass customisation aims to deliver products and services that best meet individual
`customers’ needs with near-mass production efficiency (Tseng and Jiao, 1996). It is a
`production paradigm that tries to combine the benefits of craft production of
`pre-industrial economies and mass production of the industrial economies. The paradigm
`shift to mass customisation is made an imperative for many companies to effectively
`compete in an increasingly diversified, fragmented, and competitive marketplace;
`it is made possible by the revolutionary progress in technologies like information
`technology, flexible manufacturing systems, fast prototyping, etc. (Pine et al., 1993;
`Pine, 1993; Kotha, 1995).
`Mass customisation has attracted enormous attention from both academia and
`industry in the last two decades (Silveria et al., 2001; Tseng and Piller, 2003) and has
`been widely recognised as a viable strategy for companies to gain competitive advantage.
`Bain & Company (2005), a management consulting powerhouse, has included mass
`customisation in its annual survey of management tools and trends that have strategic
`importance. Currently, the focus of research in mass customisation is shifting from its
`strategic viability to operational feasibility, i.e., from questions on what and why to how
`(McCarthy, 2004). Many firms like Dell, Motorola, Hewlett-Packard, Adidas are
`experimenting or implementing mass customisation as a new manufacturing strategy.
`According to Selladurai (2004), mass customisation is no longer an oxymoron but
`a reality.
`Despite its advances in academia and industry, mass customisation continues to be
`challenged by critics as well as reality from all sorts of aspects. Companies implementing
`mass customisation often find themselves mired in a net of conflicts both strategically
`and operationally. For example, McCutcheon et al. (1994) discuss the conflict between
`customisation and responsiveness, which is often cited as a key roadblock to achieve
`mass customisation; Squire et al. (2006) conduct empirical studies and demonstrate
`the existence of conflict between customisation and manufacturing cost; Agrawal
`et al. (2001) and Zipkin (2001) assert that mass customisation is only viable for a very
`limited range of applications; Spring and Dalrymple (2000) conclude similarly that mass
`customisation has limited novelty and restricted applicability.
`Essentially, these challenges and conflicts can be traced to information asymmetry
`and preferential conflicts between customers and manufactures in customisation.
`According to Von Hippel (2005), customers and manufacturers are asymmetrically
`endowed with need information and solution information, respectively. Both types of
`information are ‘sticky’ in the sense that they are difficult to be acquired, transferred,
`and used in a different location. Innovative tactics and technologies like differentiation
`postponement (Feitzinger and Lee, 1997), product family design (Tseng and Jiao, 1996),
`
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`154
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`
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`S. Chen et al.
`
`and product configuration systems (Salvador and Forza, 2004) have greatly mitigated
`the severity of these challenges. But, the ever-escalating market competition and
`customer expectation keep pushing firms to the edge and there is a genuine need for more
`effective means for customer–manufacturer collaboration in general (conflict resolution
`in particular) so as to move mass customisation forward.
`the emerging
`Emerging
`research
`in collaborative engineering, particularly
`Engineering Collaboration via Negotiation (ECN) as proposed by Lu (2003), promises
`great potential to tame many of the challenges that are currently constraining many mass
`customisation programmes. From a collaborative engineering perspective, mass
`customisation can be viewed as a series of activities, many of which are of engineering
`nature, where customers and manufacturers with different preferences engage in
`interactive problem solving and joint conflict resolution to create artefacts that best
`satisfy individual customers’ needs while simultaneously meet manufacturers’ economic
`objectives. Viewing mass customisation from collaborative engineering perspective
`offers a new angle to advance mass customisation research and implementation;
`reciprocally, the vested interests of different players in mass customisation offer
`a realistic and promising test bed for developing collaborative engineering theories,
`technologies, and tools.
`This paper aims to explore the synergies between mass customisation and
`collaborative engineering. The first part introduces mass customisation concept,
`its historical development, and then examines the challenges and conflicts that are
`currently constraining its implementation. In the second part, research in collaborative
`engineering is introduced as a potential conceptual framework to address the challenges
`and conflicts associated with mass customisation. In the third part, a generic framework
`of mass customisation is introduced. Based on the framework, potential scenarios of
`applying collaborative engineering in mass customisation are characterised, and the
`potential use of mass customisation as a test bed for collaborative engineering research is
`discussed.
`
`2 Mass customisation as a new production paradigm
`
`2.1 Mass customisation concept
`
`The concept of mass customisation was first expressed in Toffler’s book Future Shock,
`in which he predicted that future manufacturing enabled by information technology
`would be able to provide customised products in a large scale with little or no extra
`cost (Toffler, 1970). The term ‘mass customisation’ was first coined by Davis (1987)
`in his book Future Perfect, in which he described a trend where companies sought
`to micro-segment markets and offer unique products and services to customers. It is
`Pine et al.’s Harvard Business Review paper (Pine et al., 1993) and Pine’s book
`(Pine, 1993) that popularised the concept of mass customisation and ignited a wave of
`academic research and industrial experimentation. In their work, mass customisation was
`defined as the ability to provide individually designed products and services to every
`customer through high process agility, flexibility, and integration.
`Many authors propose more practical definitions by describing mass customisation
`as a system that uses information technology, flexible processes, and organisational
`structures to deliver a wide range of products and services that meet specific needs of
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`Mass customisation as a collaborative engineering effort
`
`155
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`individual customers at a cost near that of mass-produced items (e.g., Hart, 1995;
`Tseng and Jiao, 1996; Silveria et al., 2001). In general, mass customisation can be
`described as a production paradigm that tries to combine the benefits of craft production
`of pre-industrial economies and mass production of the industrial economies, aiming to
`deliver products and services that best meet individual customers’ needs with near-mass
`production efficiency.
`It is worth noting that mass customisation is not equivalent to mass production with
`batch size of one. Instead, mass customisation is fundamentally different from mass
`production and requires different values and roles, systems, learning methods, and ways
`of relating to customers (Pine et al., 1993; Pine, 1993; Kotha, 1995; Piller et al., 2004).
`One essential feature that differentiates mass customisation from mass production is that
`customers are actively involved in the value creation process in mass customisation
`(Duray, 2002; Piller et al., 2004). In mass production, customers are subjects to be
`observed, their demand is to be forecasted, and their attention and purchasing decisions
`are to be studied, influenced or even manipulated, as manufacturers strive to push their
`products into the market. In mass customisation, customers are no longer passive
`recipients of products or services that are designed and produced for a nominal customer.
`Instead, each customer has his or her individual identity and provides key inputs in
`designing, producing, and delivering the product or service based on his or her individual
`preferences. By synthesising relevant literature, Table 1 summarises the key differences
`between mass customisation and mass production.
`
`Table 1
`
`Mass customisation vs. mass production
`
`
`Goal
`
`Mass production
`Delivering goods and services at
`prices low enough that nearly
`everyone can afford them
`
`Economics
`
`Economies of scale
`
`Focus
`
`Product
`
`Key features
`
`Organisation
`Customer
`involvement
`
`Efficiency through stability and
`control
`Standardised products built to
`inventory
`•
`Stable demand
`•
`Large homogeneous markets
`•
`Low-cost, consistent quality,
`standardised goods and
`services
`Long product development
`cycles
`•
`Long product life cycles
`Mechanistic and hierarchical
`Customers are passively involved
`in the value chain
`
`•
`
`Mass customisation
`Delivering affordable goods and
`services with enough variety and
`customisation that nearly everyone
`finds exactly what they want
`Economies of scope and customer
`integration
`Variety and customisation through
`flexibility and responsiveness
`Standardised modules assembled based
`on customer needs
`•
`Fragmented demand
`• Heterogeneous niches
`•
`Low-cost, high-quality,
`customised goods and services
`
`•
`
`Short product development cycles
`
`•
`Short product life cycles
`Organic and flexible
`Customers are actively integrated into
`the value chain
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`156
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`
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`S. Chen et al.
`
`2.2 Development of mass customisation
`
`The concept of mass customisation originated in a historical context where mass
`production as the predominant production paradigm since Henry Ford ran into crisis in a
`new market reality and technology landscape. The paradigm shift to mass customisation
`is mainly propelled by three forces. The first is market demand. An increasingly affluent
`society and diversifying demographic characteristics demand products and services that
`are tailored to individual customers’ specific needs. Kotler (1989) claims that “the mass
`market is dead and segmentation has progressed to the era of mass customisation”.
`He argues that there is an increasing demand for product variety and customisation, and
`even segmented markets are too broad, as they no longer permit developing niche
`strategies.
`The second force is market competition. As customers become increasingly
`empowered and globalisation gains momentum, companies across many industries are
`faced with local rivals as well as competition from abroad. Product variety is exploding
`while product life cycle is shortening. As a result, many companies operating under the
`mass production doctrine of economies of scale find it increasingly difficult to amass
`enough volume, effectively differentiate from competition, accurately forecast demand
`or plan production. Many manufacturing firms are operating with more frequent orders,
`but with smaller volume of each order.
`The third is technological revolutions, which enable new ways of organising
`production activities and doing business in general. Flexible manufacturing systems
`allow manufacturers to quickly adapt to changes in product variety, volume, and delivery
`schedule without incurring high penalty in terms of cost and lead time. Information
`technologies like internet and telecommunication systems establish efficient channels for
`companies to reach widely dispersed population and in the meanwhile interact directly
`with each individual customer.
`Since the birth of the mass customisation concept, many companies and entrepreneurs
`have been striving to implement mass customisation for competitive advantage. Some
`of these initiatives were very successful. One of the most cited cases is Dell Computer,
`which is able to deliver customised personal computers and notebooks within
`one week with prices lower than its mass producing competitors. By adopting mass
`customisation, Dell Computer has gained the so-called first-mover advantage and
`maintained high profitability and growth in a hyper-competitive industry for a long
`period (Magretta, 1998). Other prominent cases include Motorola’s customised pagers,
`Adidas Mi customised shoes, Hewlett Packard’s printers, etc. (Feitzinger and Lee, 1997;
`Selladurai, 2004).
`
`2.3 Economics of mass customisation
`
`From a customer’s point of view, the economic justification of mass customisation lies
`in the availability of more choices that could potentially best fulfil the customer’s
`individual-specific needs with slightly or no extra payment. However, there are some
`mediating factors. First, choice itself does not mean value but only a potential. Choices
`are associated with tradeoffs, which may not be a pleasant experience to customers
`and could result in dissatisfaction or even distress (Schwartz, 2004). Huffman and
`Kahn (1998) points out that there is a thin line between mass customisation and mass
`confusion. Second, customers may not know what they really want. Need is a term with
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`Mass customisation as a collaborative engineering effort
`
`157
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`contextual connotations. It is subject to influences of the social environment, human
`emotions, and other factors that are difficult to be captured. Customers are often unable to
`articulate their needs for a customised product. Third, there is an asymmetry between
`customers and manufacturers in terms of information and knowledge. Customers may fail
`to understand or appreciate manufacturers’ offerings even when the customised offer
`fulfils their articulated preferences (Simonson, 2005).
`From the manufacturers’ point of view, the economic justification lies in the notion of
`‘economies of integration’. According to Piller et al. (2004), with customers integrated
`into value creation in the customisation process, companies gain access to more accurate
`information about market demand and can postpone some activities until an order
`is placed. As a result, manufacturers can reduce, if not eliminate, expensive inventory of
`finished goods. Also, by producing in response to real market demand, manufacturers can
`avoid using costly marketing techniques like sales discounts to clear unpopular products.
`In a highly competitive and volatile marketplace, the cost of inaccurate forecast could be
`very significant. Furthermore, customer loyalty can be enhanced via customisation
`because companies are able to interact with each individual customer directly.
`The information gained through customer interaction also provides valuable insight
`into customers’ latent needs and can guide future product development (Kotha, 1996;
`Piller et al., 2004).
`In general, the key issue in mass customisation from an economic perspective is how
`to leverage economies of integration to compensate potential loss of economies of scale
`and provide individual customer’s choices that can best satisfy their specific needs with
`superior experiences. More specifically, this translates into finding an effective means to
`best match customers’ individual specific needs with manufacturers’ customisation
`capabilities.
`
`2.4 Conflicts in mass customisation
`
`Despite recent advancement in both theoretical development and technology progress,
`it is still a daunting task for companies to successfully implement mass customisation.
`Many mass customisation programmes were folded and large amounts of investment had
`to be written off. Some pioneering companies, e.g., Levi’s Strauss and P&G, have
`retreated from their mass customisation initiatives.1 Toyota learned the hard way that
`mass customisation requires very different organisational structures, values, management
`roles and systems, and customer relations, which Toyota, the most successful car
`manufacture in the world, was not ready yet. In general, mass customisation is not the
`natural next-stage of mass production via incremental change. Instead, it is a system-wise
`overhaul of traditional paradigm of organising production and doing business.
`It challenges the traditional taboo of combining mass with customisation, while in the
`meantime it submerges itself into a flood of conflicts that need to be carefully handled.
`Strategically, there is an inherent conflict within mass customisation as its name
`suggests and as many critics rightly claim: Mass implies aggregation and repetition,
`while customisation means individual and one-of-a-kind. Traditionally, companies
`compete either on mass via high efficiency and low cost or on customisation by offering
`differentiated solutions and charging monopoly premiums. Combining mass and
`customisation into a single strategy risks saddling the company in a dilemma where
`competitive advantage gets lost on both ends. Operationally, there are conflicts between
`different performance objectives in mass customisation. Under the customer-centric
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`S. Chen et al.
`
`philosophy, customers’ pull is the ultimate driving force for mass customisation
`(Tseng and Piller, 2003). However, customers’ needs are usually diverse and irregular.
`The diversity of customer needs requires manufactures to offer high product variety,
`which often leads to high component variety, large numbers of suppliers, and high
`administrative complexity. The irregularity of individual customers’ needs means
`demand unpredictability and instability. As a result, production planning becomes very
`difficult and ineffective, leading to either resource under-utilisation or shortage.
`Furthermore, as the value chain in product customisation is driven by customers’ ‘pull’
`instead of manufacturers’ ‘push’, delivery lead time becomes part of customers’ waiting
`time. Customers’ increasing demand for responsiveness further aggravates the difficulty
`to simultaneously achieve high efficiency and high quality of customisation.
`Although conflicts abound and usually assume different forms, ultimately they can be
`accounted for by the opposing preferences between manufacturers and individual
`customers, both of whom have to make trade-offs in seeking of a customised solution
`with superior value propositions. With customers actively integrated into product
`customisation, tradeoff-making needs to be done in a collaborative way so that
`customers’ needs could be well matched with manufacturers’ capabilities. One critical
`issue in mass customisation is how manufacturers and individual customers could work
`collaboratively and resolve conflicts effectively for mutual benefits.
`
`3 Collaborative engineering as a tool for conflict resolution
`
`To collaborate means, “to work jointly with others or together, especially in an
`intellectual endeavor” (Merriam-Webster dictionary). How to collaborate effectively has
`been a subject of research since the birth of human beings. Recent development in
`information technology like internet and telecommunications has enabled people to
`engage in collaboration ‘virtually’ across temporal and geographical boundaries. To date,
`researchers from various disciplines including optimisation, group decision-making,
`business research, and computer science have employed different methodologies and
`techniques to study the general subject of collaboration, and collaborative engineering in
`particular (Lu, 2003).
`According to Monplaisir and Salhieh (2002), collaborative engineering can be viewed
`as a process in which people working in teams according to engineering methodologies
`and supported by technical tools can share resources and knowledge to achieve common
`goals. The
`italic words are
`the key elements
`in collaborative engineering.
`More specifically, people are the main body of collaborative engineering since all
`enterprises and organisations are made up of people, no matter they are physically
`co-located or virtually co-located. Engineering methodologies include methodologies like
`Quality Function Deployment (QFD), Concurrent Engineering, etc., which basically
`prescribe a systematic framework and process to conduct collaboration activities. The
`technical tools are supporting systems that can be utilised to facilitate collaboration
`process.
`A key issue in collaborative engineering is how to resolve conflicts, since
`participants’ preferences are often not fully aligned and there is uncertainty involved.
`Recently, Lu (2003) proposes ECN as a new paradigm for collaborative engineering.
`ECN is defined as
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`Mass customisation as a collaborative engineering effort
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`“a socio-technical decision making activity where a team of stakeholders with
`different expertise and mixed motives engage in interactive and joint conflict
`resolutions to co-construct consensual agreements of some engineering matter.”
`The ECN framework treats collaborative engineering as a socially mediated technical
`activity, which concerns more about human behaviour and its impact on technical
`decisions. It also treats the collaborative engineering as a dynamical system in which
`each participant’s views may change and be influenced by others’ perspectives,
`i.e., a process of negotiation.
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`4 Mass customisation in collaborative engineering perspective
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`4.1 Conceptual synthesis
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`Viewed from collaborative engineering perspective, mass customisation is essentially
`a production paradigm under which customers and manufacturers collaboratively create
`products or services to best meet individual customers’ needs in an efficient way.
`The process of product or service creation is essentially of engineering nature but also has
`a social bearing because of the interactions among engineers, sales, marketing, etc.
`Conceptually, mass customisation can be taken as a collaborative engineering activity,
`where customers and manufacturers with asymmetric information and different
`preferences engage in interactive and joint conflict resolutions to co-create an artefact.
`How such collaboration can be carried out effectively and efficiently is an ideal research
`topic for collaborative engineering, and it also holds a key to advance mass customisation
`research and implementation. In general, there are synergies between these two fields of
`study. On the one hand, collaborative engineering research results can be applied to
`address various collaboration issues in mass customisation; on the other hand, mass
`customisation offers a fertile test bed to develop new collaborative engineering theories,
`techniques, and tools.
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`4.2 Applying collaborative engineering in mass customisation
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`Firms pursue mass customisation following different routes; customers get involved at
`different points along the value chain and they are involved in different ways subject to
`factors like industry structure, product nature, market conditions, etc. Different operation
`modes of mass customisation will involve different people and require different
`approaches and methodologies for collaboration. This section refers to a generic mass
`customisation framework to discuss where and how collaborative engineering could be
`applied in mass customisation.
`In discussing product customisation in a broad manufacturing strategy context, Spring
`and Dalrymple (2000) propose a generic model of product customisation, which includes
`three stages, namely problem solving, design specification, and transfer (Figure 1).
`The problem-solving stage can be further decomposed to problem definition and solution
`realisation. During the problem-solving stage, the product customisation concept and
`design scheme are determined and agreed between customers and manufacturers.
`Design specification follows problem solving and it is the stage where a particular
`customisation type or product configuration is determined based on the product
`architecture. The design specification and the process by which it is achieved will
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`S. Chen et al.
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`determine the firm’s performance on some of the operational objectives, e.g., quality,
`service and cost. The transfer stage is to convert design specifications into actual
`products.
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`Figure 1 A model of product customisation
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`Source: Adapted from Spring and Dalrymple (2000)
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`The three-stage model provides a generic and compact framework to conceptually
`approach mass customisation. A limitation is that customer–manufacturer interaction is
`confined to the problem-solving stage only. This paper extends this model to allow
`customer integration in design specification and transfer stages as well and uses the
`extended model as a framework to discuss the application scenarios of collaborative
`engineering
`in mass customisation. In correspondence
`to
`the
`three stages of
`customisation, these general scenarios are termed as co-innovation, co-configuration,
`and co-production, respectively. Relevant research is reviewed and discussed in
`more detail according to people/team, engineering methodologies, and tools within a
`collaborative engineering perspective (Figure 2).
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`Figure 2 Application scenarios of collaborative engineering in mass customisation
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`4.2.1 Scenario I: co-innovation
`Mass customisation is a very dynamic system in the sense that both customers’ needs and
`manufacturers’ capabilities are constantly evolving. Given the diversity, irregularity, and
`unpredictability of customers’ needs, it often happens that some customer may not find a
`satisfactory configuration out of the manufacturer’s current offerings. As a result,
`companies implementing mass customisation are often challenged to design and develop
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`Mass customisation as a collaborative engineering effort
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`new solutions, i.e., to innovate. The ability to innovate and innovate at a rate that matches
`or exceeds customers’ changing tastes and expectations is critical for any mass
`customisation programme to sustain.
`The source of innovation has been a subject of debate. The manufacturer-centric view
`holds that innovations result from intentional research, e.g., the design and development
`work in a company’s R&D centre. The user-centric (or customer-centric) view contents
`that many innovations actually come from users, particularly the so-called lead users,
`whose present needs will become general in a marketplace in the future (Von Hippel,
`2005). One common foundation between these two different views is that (customers’)
`need information and (manufacturers’) solution information need to be brought together
`for innovation to take place. As a result, problem solving in mass customisation is
`collaborative in nature and designated as collaborative innovation (co-innovation) in this
`paper.
`In a typically organisational setting, co-innovation usually takes place between
`customers and product or process design engineers, intermediated by sales, application
`engineers, marketing, etc. Customers could be individual consumers or business
`customers. If it is the latter, they are usually from the purchasing and sometimes
`engineering department. Among customers, the so-called lead-users deserve special
`attention. According to Von Hippel (2005), lead users are those users (or customers) who
`are ahead of the majority of users in their populations with respect to an important market
`trend.
`As engineering methodology is concerned, the joint problem solving in mass
`customisation is essentially a collaborative design activity. Product Family Architecture
`(PFA) provides a compact and structured way to represent and organise design
`knowledge from multiple views (Tseng and Jiao, 1996; Jiao, 1998). Under PFA,
`customers, product engineers, and process engineers can work under a unified
`framework. As a result, PFA could serve as a framework for co-innovation. Given the
`preferential diffe