Cook-Hauptman Associates, Inc.

The Nature of the Problem: A Systems Viewpoint

By Jim Cook ( 1995 )

It is the change in the nature of demand over the past generation which, I contend, is the systemic cause of stress in traditional production systems. I'm going to call these traditional production systems "mass production." However, while I believe the Japanese "lean production" systems are one response to that stress, this response is technically obsolete response (because it makes such scant use of information technology and doesn't leverage a solid theoretical underpinning, because it doesn't have one).

Mass production is designed around meeting known consumer needs.  People "needed" a car, cloths, food, shoes, utensils, and appliances. Many of these needs were seasonal. Easter "duds" in the spring; vacationing paraphernalia in the summer; Back to School "duds" in the fall, with most capital purchases (and toys) occurring around Christmas.  With a three month consumer response time, no wonder a one to two month mass production response time was well suited to this kind of demand. (I'm using as the production response time, the reciprocal of the annual inventory turns times 12 months.)

Furthermore, the information critical to success (i.e., profitability) was in the possession of producers. How are the goods to be produced? How can it be done for less cost? What goods should be produced? With modest variety, market analyses made the individual consumer tastes and likes adequately predictable. Therefore, the individual consumer's information was unimportant. The locus of information was clearly in the producer's camp.

Mass production was so successful in meeting America's (and other Highly Industrialized Economies') needs that needs were saturated in many markets by the 1970s.  What family needed another car, television, refrigerator, let alone more food, cloths, per se, or shoes and the like? As Maslow stated, needs which are met are no longer an incentive. These needs were met, so now "wants" replaced "needs." The nature of demand changed!

Wants, though, have an entirely different system response time. Wants are whimsical. They come and go in less than a day. (Hence the advice, "sleep on it") As such, the system response time of wants is less than a day (to come and go is one cycle through the demand cycle). Furthermore, wants have a very wide scope of substitution.  If no shirt is delightful, the consumer may, instead, buy a scarf or rent a movie.

Now the producer has lost control, or so it seems.  The producer must seize a fleeting moment of commitment which is (much) less than a day and provide an item which "hits the spot." The initial response by the producers was to offer variety, let it lay around, and then hope that over time they caught the moment. That leaves the retailer with too much variety for too long.  Consequently, discounts abound and represent the major cost of retailing. While GM negotiates 5 cents with Du Pont off of an interior carpet, a consumer negotiates $2000 off of the price of the car; a $1000 more than GM would ever have to give up if it only made what consumers wanted.

The information vital to profitability (remember that $1000 GM was forced to give up) is in the head of the consumer. The vital ingredient of profitability, information, has shifted from the producer to the consumer. At a given dealership (on "Automobile Mile") there is just too much variety, and too much expectation of variety, for any dealership to both have what consumers want and make a profit (especially against starving competitors).  If only producers could be out there with the product of choice at the moment of commitment before the whim passes. The challenge is to design such a production system.

Fundamental to such a production system is to get inside the head of the consumer and tap that critical information required for profitability. But remember, that is time-varying information. Satisfaction is critically dependent on meeting the temporal requirement (all such goods are perishable), as well as the product design (delivery, service, safety, and recycling) requirements.

Effective production systems must now have: materials with high potential specificity, machines driven by design specifications, and an interactive multi-media design suite which delights and engages the consumer. That way, consumers can guide such a virtual system into satisfying their whim, and can produce what they want, when and where they want it.



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