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D ell Computer is well-known for its ability to mass- produce computers that are customized to a cus- tomer’s order, a production and operations process known as mass-customization or, in a value-chain context, a build-to- order (BTO) strategy. The ability to build to order depends on how well a company can efficiently meet customer demands at each stage of the value chain. At Dell, this ability depends on computer systems that link customer order information to production, assembly, and delivery operations. At Dell the BTO process begins with receipt of the cus- tomer order from the Internet, fax, or telephone. It takes approximately one day to process the order and for produc- tion control to ensure that the necessary parts are in stock. Assembly and shipment takes another day, and delivery to the customer’s home or office takes a final 1 to 5 days. The value chain in place at most firms assumes a make- to-forecast strategy. That is, standard products are produced from long-term forecasts of customer demand. Thus the primary activities of the value chain move from inbound logistics to operations to outbound logistics and then mar- keting and sales, all based on projections of what customers will be buying and in what quantities. A make-to-forecast strategy offers efficiencies in production, but if the forecasts are inaccurate, as they frequently are, the results are lost sales (inadequate supply) or heavy discounting to move excess product (oversupply). Then the bottom line is, literally, less profit. Another major disadvantage of the make-to-forecast stategy is the inability of the firm to track ongoing changes in customer demand. Dell’s value chain moves the marketing and sales activity forward to the front of the value chain. In its build-to-order strategy, Dell assembles the product only af- ter the customer has placed the order, so marketing and sales comes first. The primary disadvantage of the BTO strategy is system sensitivity to short-term changes in cus- tomer demand. For example, if a particular computer com- ponent suddenly becomes wildly popular or temporarily unavailable, the standard two-week supply in inventory may diminish fast and customer orders will not be com- pleted on time. A successful build-to-order strategy offers companies like Dell numerous benefits in process, product, and vol- ume flexibility. For example, customer requirements are linked directly to production. As a result production deci- sions are based on up-to-the-minute customer demand, not long-range forecasts, which can be wildly inaccurate. This increases management’s knowledge about trends in the marketplace and decreases inventory holding costs. BTO also offers partners in Dell’s value system increased visibility to the demand and flow of goods. As noted in the text, understanding this entire value system can give addi- tional insight and opportunities for competitive advantage. In addition, the support structures for BTO are naturally more flexibile, creating a higher sense of responsiveness within the firm and a more flexible and agile company. One outcome of such flexibility is that adjustable price and sales incentives can be used to manage demand levels, rather than reactively discounting excess stock. Finally, be- cause the customer gets exactly what he or she wants, first- time customers are likely to become repeat customers and recommend Dell to friends and colleagues. Executing a build-to-order strategy isn’t easy, as many companies have found out. Not only must interconnected information systems be built, but BTO frequently requires a change in organizational culture, managerial thinking, and supplier interactions and support. Inevitably the process begins by acquiring a better understanding of cus- tomer demand; then improvements in information flow will produce the ability to increase responsiveness in all areas of the value chain. For Further Exploration: Use the Internet, if necessary, to find other companies that use a BTO strategy. How would a BTO strategy work in another industry, for exam- ple, automobiles or toys? What are the implications of BTO for the value chains of suppliers of Dell components?