Within two days, Ross had shipped a prototype to Danly-Komatsu's engineers. Because the system was a custom fit, the engineers were able to install it in their presses in less than half the time it would have taken to assemble and load up standard parts, and it took up far less space than the company's usual valve networks. Danly-Komatsu saved money, too: the entire process cost 50% less than it would have to buy individual standardized pieces and cobble them together into a system. For Ross, the sale meant a lifelong customer. "If you can find one maverick and get him involved in the design process," says Steve Demster, Ross's current president and chief operating officer, "it becomes his product, and he feels a deep sense of ownership."
Contrary to what the term mass customization implies (unique products for every customer), Ross carefully chooses whom it will offer custom work to in order to keep the load manageable and the efficiency rate high. It's not manufacturing time that's the problem. In fact, the technology allows Ross to make its custom products almost as fast as it makes its standard ones--sometimes in as little as 24 hours. (Before the technology investment, it took Ross at least six months to produce a custom system.) And with the latest version of the Intergraph CAD/CAM, which Ross installed in early 1997, the Ross/Flex engineers and salespeople can further speed the process by building on past designs, cutting and pasting new parts from and to the 3-D drawings as easily as they can cut and paste paragraphs in Microsoft Word.
What slow things down are the face-to-face meetings--at least several hours' worth--with the customer up front and the time needed to work with other vendors to integrate non-Ross products into the custom systems. So Ross admits into the program only those customers that have been dissatisfied with standard valves and that look like good long-term prospects.
A glass-bottling company called Owens-Brockway, based in Toledo, is a case in point. The company had been forced to do maintenance every three to six months on its valve system, which had been designed by a competitor, because the valves couldn't withstand the high temperatures required by the bottling machines to shape the glass. Ross solved the problem by designing a prototype especially suited to hot, dirty environments, like that inside the glass-blowing machines. Six months later the glass company hadn't made a single repair to the system.
Despite its benefits, the Ross/Flex program isn't always an easy sell. Customers can be reluctant to invest the up-front design time, and they sometimes fear getting locked into a custom-made system. One way Ross wins over hesitant prospects is by offering the initial prototype--sometimes worth up to $20,000--free. Usually, once customers have tested the prototype, they're hooked. As Duignan puts it, "If you're basically inventing the customers' ideas, of course they'll order the product at the end."
The numbers support the contention. Though the Ross/Flex program generated only about 1% of the company's North American sales in its first two years, it now accounts for roughly 25% of those sales. By the time Russell Cameron, the cancer-stricken CEO, died last year, the company's revenues--now at more than $50 million --were growing significantly faster than those of other companies in its industry. Steve Demster attributes the majority of the growth to the Ross/Flex program. In addition, the company's core business of standard parts has gained new products through Ross/Flex, most recently a pilot-operated check to turn off lifting machinery at a moment's notice. "The Ross/Flex program seems to keep us one generation ahead in product development," says Demster. "For the competition, it's like trying to hit a moving target."
Vincent Oliva, Paul Sanchez, and Joel Myers came at mass customization from the opposite direction of Henry Duignan: they had no company to turn around, just an idea for a start-up that they planned to build around the mass-customization concept in hopes of carving out a market niche.
Founded in May as a limited-liability company under Risk Capital Reinsurance, based in New York City, the independently run Capital Protection Insurance (CPI) Services grew out of the three men's frustration with the insurance industry's inflexibility. With 65 years of insurance-company experience among them, they'd seen too many would-be customers alienated and too many others not covered appropriately. So they set out to design an "underwriting management company," as Oliva, the executive vice-president, calls it, to sell businesses tailor-made strategies for managing risk. But they knew the idea could be realized only if the right technology were in place from the start: customized actuarial and statistical-modeling software running on their Compaq PCs.
The trio's business model works this way: Traditionally, companies seeking insurance have two not very good options: a standard policy that leaves them overinsured and paying too much, or one that leaves them underinsured and at risk. CPI Services, however, has no standard approach. Instead, the partners consider each customer's situation individually and draw up a company-specific risk-management plan. The appropriate plan could end up being a standard product-liability insurance policy, but it could just as easily include a fund that the customer collects dividends on when it has a risk-free year.
Take, for example, one of CPI Services' potential customers: a company that manufactures truck frames, which it sells to large automobile makers. The company assumes a certain amount of risk with each frame it sells. For instance, if someone driving a truck built by one of the large automakers gets hurt in an accident and sues, the final blame could end up on the truck frame and, by extension, on the company that made it. To protect itself, the company has always purchased standard product-liability insurance but in its 20 years of business has never had to use it. In fact, the company's owner is pretty sure he could handle the risk himself by putting money aside in case of a major lawsuit--if only he had a little help.
