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International Journal of Production Research

Vol. 49, No. 10, 15 May 2011, 30233043


An analysis of manufacturers supply and demand uncertainty based on
the dynamic customisation degree
Shen-Tsu Wang
*
Commerce Automation & Management Department, National Pingtung Institute of Commerce,
1F, No. 6, Lane 79, Sec. 3, Jiangning Road, Banqiao City, Taipei County 220, Taiwan, ROC
(Received 6 October 2009; final version received 23 February 2010)
Diverse demands regarding products are common; however, manufacturers
usually cannot respond immediately to meet such changes upon demand, and
thus, customer satisfaction tends to be reduced. Notebook computer manufac-
turers adopt a production mode of mass customisation; hence, a certain degree of
dynamic customisation measurements, inherent in different supply chain models,
allow manufacturers to evaluate costs and profits in advance. The application of
the model, as proposed in this study, indicates that the most important factor of
the customisation degree is product price. The dynamic customisation degree is
adjusted based on monitoring indicators, which requires less total cost and
produces greater accuracy in forecast results regarding the prediction model of
customer demands. This study develops a dynamic customisation model for total
product profits, inventory cost of semi-manufactured products, shortage costs
and buffer inventory costs, which are affected by the degree of dynamic
customisation of the products. It also analyses the supply and demand
uncertainties of the Direct Shipment of the Manufactured Model, as well as the
Door-to-Door Direct Shipment of the End User Model in the notebook computer
industry, as the criteria with respect to a firms customisation degree, costs, and
profits in different supply chain mode operations.
Keywords: notebook computer manufacturers; dynamic customisation degree;
supply and demand uncertainties
1. Introduction
Supply chain demand management indicates that diverse demands result in varied products
and components. Manufacturers usually cannot immediately meet these changeable
demands and, thus, customer satisfaction is reduced. Manufacturers lose customers and
markets and their supply of quality products significantly declines. Since the markets cater
to the retailers and end customers, customer demands become personalised. Many
manufacturers provide their products through dynamic customisation and marketing.
Thus, customers can purchase totally customised products or equip those products in a
selective environment. For instance, they can purchase Dell computers over the Internet.
Chen and Wu (2006) suggested that in the trend to globalisation, core competency can be
defined from the perspective of the supply chain and that core competency should include:
strategic planning, manufacturing process innovation, supply chain management,
logistics management, quality management and R&Dinnovation ability. In order to survive
*Email: d917812@oz.nthu.edu.tw
ISSN 00207543 print/ISSN 1366588X online
2011 Taylor & Francis
DOI: 10.1080/00207541003727611
http://www.informaworld.com
and be successful, firms must rely on unique competency. One of the definitions of quality
management is that quality means suitability; all products and services are produced at
different degrees and levels. In order to meet customer demand, these different degrees and
levels are constructed intentionally (Montgomery 2005). In order to study the uncertainty of
customers and the supply chain, firms must first recognise the targets in order to segment
customer demand and meet the uncertainty of the supply chain. These demands allow firms
to set up the cost, customisation degree and service demand (Chorpa and Meindl 2004).
Thus, this study has developed a dynamic customisation degree model to allow firms to
recognise the relationships among customer demand, corporate profits, manufacturing cost
and customisation degree.
2. Literature review
With regard to the issue of solving supply and demand uncertainties, Baba et al. (2009)
focused on a single-stage, single-item inventory system, which included non-stationary
demands and lead-time uncertainties. A dynamic reorder point control policy is analysed,
as based on the proposed new approach, with parameters determined upon a given target
level of cycle-service. The empirical results demonstrate that benefits arise from a policy
that allows insights to be gained into other pertinent managerial issues. Kumar and Wilson
(2009) investigated the link between off-shoring, postponement, and inventory, and
applied a set of real-world data to a simplified product, from which the total cost benefit of
each postponement was examined. An efficient method was identified for determining
which uncertain terms in the combined equations would dominate the alterations of the
inventory levels for any given strategy. Wong et al. (2009) analysed postponement based
on the positioning of the differentiation points and the stocking policy. The results of
numerical experiments showed how different operational parameters could influence the
choices of optimal configurations, the preference for early or late postponement, and the
relative savings obtained from employing postponement.
With regard to the models of dynamic customisation degrees, Lau and Lau (2003)
validated the influence of different demand models on inventory prices, and suggested that
analytical results be based on five different demand models. Balkhi and Benkherouf (2004)
proposed a model based on the correlation between demand and inventory degrees, and
between inventory holding costs and inventory, and in addition, assumed that the attrition
rate in the limited planning period was fixed, the replenishment cycle was fixed, and that
shortages were not permitted to influence replenishing the inventory. Brun and Zorzini
(2009) aimed at investigating the relationships existing between postponement and
modularisation practices, as actually implemented by Italian companies, and the
contextual factors inherent in product features. This research adopted a multi-case
study strategy, with statistical techniques applied for data analysis. Two main factors are
identified, namely, product/process customisation and product/process complexity; and
four customisation strategies, differing in terms of supply chain structure, are analysed.
3. Construction of a dynamic customisation model
This section introduces the limitations of the research scope, parameter definition and
model construction, and multiple and non-linear customisation model construction, plus
the dynamic construction of customisation degree.
3024 S.-T. Wang
3.1 Research scope limitations
(1) Issues in the organisations have not been included.
(2) After-sales service has not been included.
(3) Customisation degree reflects on the model cost.
3.2 Parameter definition and model construction
Salvador et al. (2004) divided the supply chain into high and low customisation degrees,
according to the types and numbers of products and the customers agreed upon waiting
time. Each product that the firm produced (i = 1, 2, . . . , n) underwent N processes during
manufacturing to completion. In order for manufacturing to be successful, a buffer is set
before each manufacturing process, which secures inventory, assuring the manufacturing
process will not stop due to shortages. Prior to manufacturing process M, each product
shared identical manufacturing processes; however, a difference occurs during the M1th
manufacturing process. According to Lee and Tang (1997), this model assumed the service
degree as more than 90% satisfied, as corporate quality guaranteed a high service degree
(Hart 1995). In order to fulfil this service level and meet the different demands of
customers, the costs and parameters that are mentioned in Section 3.2.1 had to be
maintained at a certain level (Zinn and Bowersox 1988, Pagh and Cooper 1998).
3.2.1 Parameter definition
D
k
i
average demand of product i in the supply chain upon customisation
degree k, i = 1, 2, . . . , n;

k
i
demand standard deviation of product i in the supply chain upon
customisation degree k, i = 1, 2, . . . , n;
A
k
i
average shortage cost of product i in the supply chain upon
customisation degree k, i = 1, 2, . . . , n;
E
k
i
average supply amount of product i in the supply chain upon
customisation degree k, i = 1, 2, . . . , n;
t
k
m
(M) assigned cost for each unit of the mth manufacturing process, in
addition to the Mth co-manufacturing process in the supply chain,
based upon customisation degree k; total manufacturing process
includes N stages, m = 1, 2, . . . , N;
H
k
m
(M) inventory holding costs for each unit of the mth manufacturing
process, in addition to the Mth co-manufacturing process in the supply
chain, based upon customisation degree k; total manufacturing
process includes N stages, m = 1, 2, . . . , N;
L
k
m
(M) lead time of the mth manufacturing process, in addition to the Mth
co-manufacturing process in the supply chain, based upon customisa-
tion degree k; total manufacturing process includes N stages,
m = 1, 2, . . . , N;
S
k
m
(M) ordering costs of the mth manufacturing process, in addition to the
Mth co-manufacturing process in the supply chain, based upon
customisation degree k; total manufacturing process includes N stages,
m = 1, 2, . . . , N;
International Journal of Production Research 3025
P
k
i
(M) average price for product i with Mth co-manufacturing process in the
supply chain, based upon customisation degree k, i = 1, 2, . . . , n;
W total production, W =
P
n
i=1

2D
k
i
S
k
i
=H
k
i
p
, i = 1, 2, . . . , n;
z security factor;
c
k
m
in a supply chain of customisation degree k, when the mth
manufacturing process becomes the increased/reduced average invest-
ment cost of the co-manufacturing process, total manufacturing
process includes N stages, m = 1, 2, . . . , N;
U customer demand without the consideration of customisation;
R sensitivity to customer demand on price, 0 _ R _ 1;
p(D
k
i
4E
k
i
) in the supply chain upon customisation degree k, with regard to
product i, the probability that the average demand is more than the
average supply, i = 1, 2, . . . , n;
c
1
total of basic manufacturing cost;
d prosperity, d = 1, 2, . . . , 5;
P(d) probability of prosperity, d = 1, 2, . . . , 5.
3.2.2 Description of individual models without consideration of customisation degree
(1) Total revenue of product (F), as shown in Equation (1):
X
n
i=1
P
k
i
(M) W: (1)
(2) Inventory cost of semi-manufactured goods (HI ): upon the influence of lead time
in supply chain of customisation degree k, the semi-manufactured goods inventory
cost, as shown in Equation (2):
H
k
m
(M) L
k
m
(M) W: (2)
(3) Shortage cost (SI ), as shown in Equation (3):
X
n
i=1
A
k
i
p(D
k
i
4E
k
i
) (D
k
i
E
k
i
): (3)
(4) Buffer inventory cost (BI ): according to Peterson and Silver (1979) and Riezebos
et al. (2003), as shown in Equation (4):
H
k
m
(M)
W
2
z

L
k
m
(M) 1
q

: (4)
(5) In supply chain upon customisation degree k, when product i (i = 1, 2, . . . , n) share
M co-manufacturing process (0 5M _ N), total inventory cost (HI BI ), as
shown in Equation (5):
H(M) =
X
M
i=1
H
k
i
(i) L
k
i
(i) W
X
M
i=1
H
k
i
(i)
W
2
z
k
1,2,...,M

L
k
i
(i) 1
q

: (5)
3026 S.-T. Wang
Total inventory cost of (HI BI ) when product i is in individual production
(NM), as shown in Equation (6):
H(N M) =
X
NM
i=M
H
k
i
(i) L
k
i
(i) W
X
NM
i=M
H
k
i
(i)
W
2
z
X
NM
i=M

k
i

L
k
i
(i) 1
q
" #
: (6)
(6) Manufacturing process divided into N processes; business cost (DI ) of each
manufacturing process, as shown in Equation (7):
X
N
m=1
t
k
m
W: (7)
(7) Total of basic manufacturing cost, as shown in Equation (8):
c
I
= HI BI SI DI: (8)
(8) Uncertainty demand function specification.
Since the per-unit time submits to the Poisson distribution, as assumed, the
probability distribution of the demand quantity can be shown by the following
normal distribution equation (Chu and Lin 2004), as in Equation (9):
X
o
n=0
P
n
(n) f
T
x
(S)

n
, (9)
where n and X are independent stochastic variables; n is the variance; and X can be a
variance or a series (X _ 0), if stochastic variable Y is the sum of n and X, Y is the
probability distribution. The pmf of discrete stochastic variable n is P
n
(n), the pdf of
continuous random variable X is f
x
(x), and we define the Z-transform of P
n
(n) as P
T
n
(Z),
and the S-transform of f
x
(x) as f
T
n
(S).
3.3 Construction of multiple and non-linear customisation models
This study included a basic profit model based on Mukhopadhyay and Setoputro (2005),
but revised it with respect to the direct-sale suppliers profit, setting aside the suppliers
profit function and substituting different demand functions.
(1) Multiple linear demand with consideration of customisation degree
It was assumed that the demand function was a multiplying linear demand and that
customer demand was completely affected by customisation degree. This depends
on the prices of linear demand directly multiplied by the customisation degree.
Customer demand upon consideration of customisation degree, as shown in
Equation (10):
X
n
i=1
D
k
i
= U R P
k
i
k: (10)
Corporate profit, as shown in Equation (11):
= (F c
1
c
1
k)(U R P
k
i
k): (11)
@
2
=@k
2
= 2 c
1
U R P
k
i
: Since c
1
40, @
2
=@k
2
50:
International Journal of Production Research 3027
Maximum profit and the fittest degree of customisation, as shown in
Equation (12):
k
+
=
c
1
P
k
i
2c
1
: (12)
Comparing Door-to-Door Direct Shipment with End User Model, Direct
Shipment after Manufactured Model revealed a lower customisation degree.
Thus, it was suitable for the multiple linear demand model.
(2) Non-linear demand upon consideration of customisation degree
It was assumed that the influence of the customisation degree on demand was
increasing. When customisation increased, demand also increased. It affected the
price-dependency demand equation. When the customisation degree changed,
the demand would considerably change. With the increase of customisation degree,
the equations of basic linear demand would increase by k. We assumed that the
demand was one to square times of the basic linear demand. Demand mode was
the 1 k equation of the demand depending on the prices.
Customer demand (with consideration of customisation degree), as shown in
Equation (13):
X
n
i=1
D
k
i
= (U R P
k
i
)
1k
: (13)
Corporate profit as shown in Equation (14):
= (F c
1
c
1
k)(U R P
k
i
)
1k
: (14)
@
2

@k
2
= (U R P
k
i
)
1k
log(U R P
k
i
)[2c
1
(c
1
P
k
i
c
1
k) log(U R P
k
i
)]:
Since (U R P
k
i
) 40, the condition of @
2
=@k
2
50 is:
c
1
4
P
k
i
log(U R P
k
i
)
2 (1 k) log(U R P
k
i
)
maximum profit results. The fittest customisation degree is shown in Equation (15):
k
+
= 1
P
k
i
c
1

1
log(U R P
k
i
)
: (15)
Because of the trend towards mobile and wireless electronics, the notebook computer
industry has kept up with PCs in terms of calculation functions. Besides, with the
continuous low-price strategies of companies such as HP, Dell and Acer to replace PCs,
the demand for notebooks went from around 20 million in 1999 to 30 million in 2002 and
to 40 million in 2004. The growth was stunning. In 2005, the demand reached 60 million.
The application of demand should be estimated by a non-linear demand model. With the
orders of brand firms in 2005, the global share of the notebook computer industry in
Taiwan broke through 80% (Chen 2006). The product demand in the case of company B
also revealed the growth of non-linear demand. Door-to-Door Direct Shipment to End
User Model revealed a higher customisation degree. Thus, it was more suitable for the
non-linear demand model.
3028 S.-T. Wang
3.4 Arrangement of significance of assessment factors through grey relational analysis
After the calculation of customisation degree in Section 3.3, grey relational analysis can be
used to probe the significant factors on customisation degree. The degree of relationship
among subsystems or elements could be evaluated through grey relational analysis (Deng
1982), and important factors influential to the development trend are then found to
influence the major features of the system as in the following steps.
Step 1: Normalise original data: normalise by dividing the original data x
i
(k) with the
mean value of this sequence, as shown in Equation (16):
r
i
(k) =
x
i
(k)
P
N
k=1
x
i
(k)
N
, i = a, . . . , d, k = A, . . . , N: (16)
Step 2: Designate the standard sequence and calculate the difference sequence: take the
mean value as a standard sequence, i.e., sequence 0, the difference sequence D
0i
(k) indicates
the absolute difference of elements k between the other sequence i and the standard
sequence 0, as shown in Equation (17):
D
0i
(k) = r
0
(k) r
i
(k)

, i = 1, 2, 3, . . . , k = A, . . . , N: (17)
Step 3: Calculate maximal difference D
max
and minimal difference D
min
, as shown in
Equations (18)(19):
D
max
= max
i,k
D
0i
(k) (18)
D
min
= min
i,k
D
0i
(k): (19)
Step 4: Calculate grey relational coefficient
0i
(k): the relational coefficient
0i
(k) is
defined below, of which & is the adjustment factor, as shown in Equation (20):

0i
(k) =
D
min
& D
max
D
0i
(k) & D
max
: (20)
Step 5: Calculate the grey relationship
0i
between every sequence and the standard
sequence: the grey relationship
0i
as shown in Equation (21):

0i
=
X
N
k=A

0i
(k)
N
: (21)
Step 6: Conduct sequencing according to the grey relationship.
3.5 Dynamic construction of customisation degree
With regard to assumptions on business based on the total scores of monitoring indicators
of the Council for Economic Planning and Development (Republic of China), this study
divided business into five levels: blue (recession), blue and yellow (unsatisfactory business),
green (stationary business), yellow and red (slightly prosperous business) and red (overly
prosperous business).
International Journal of Production Research 3029
Based on the significant factors on customisation degree obtained by grey relational
analysis, this study compared manufacturing costs of manufacturers fixed and dynamic
customisation degrees. With different business and customisation degrees, there are
different total related costs. k of min
k
c
1
(k, d ) is an optimal solution k
+
. Thus, firms can
develop customisation degrees for different kinds of business.
External environment is unpredictable and firms cannot immediately change the
manufacturing model. The probability of different kinds of process d is P(d). After the
firms select customisation degree k, E(k) means that regardless of business, the total
expected cost upon customisation degree k is E(k), and the total expected cost of static
decision min
k
E(k) = E, as shown in Equation (22):
E(k) =
X
d={d
1
,...,d
5
]
P(d ) c
1
(k, d ): (22)
When firms can change the manufacturing model without restriction, B refers to the
total expected cost of a different customisation degree k
+
in different kinds of business.
Total expected cost of dynamic decision min
k
B(k) = B, as shown in Equation (23):
B(k) =
X
d={d
1
,...,d
5
]
P(d ) c
1
(k
+
, d ): (23)
When B5E, it demonstrates that if firms can immediately adjust the customisation
degree and supply chain structure with the change of business, they will minimise the cost.
This study used two notebook computer manufacturers as examples to compare the
construction of customisation degree upon the supply chain structure of static and
dynamic decisions in order to function as the criterion for the firms when encountering
uncertain business.
3.6 Comparison of different models with regard to customer demand prediction
This study adopted one of the models proposed by Lau and Lau (2003) and compared the
customisation degree of different demand models (Equation (24)) with multiplying linear
and non-linear demand models of this study, and evaluated the correctness of the
prediction model by tracking signals controlled by the said model, as shown in
Equation (24):
d = a bp, a and b are positives, (24)
where:
p _
a
b
; p
+
=
m
a
b

2
:
where:
m unit manpower cost;
p unit retail price;
d prediction of the amount of customer demand.
Bias estimation of predictors in this study is calculated by tracking signals (TS)
controlled by the prediction model. TS is the rate after dividing mean absolute deviation
(MAD) by total accumulated bias, as shown in Equations (25)(28): upper and lower
3030 S.-T. Wang
values of the control are between 4 and 4. is between 0.1 and 0.5. In this case, is 0.2
(Heizer and Render 2004):
Bias, e:
e =
P
n
i=1
(A
i
F
i
)
n
: (25)
Mean absolute deviation, MAD:
MAD =
P
n
i=1
A
i
F
i
[ [
n
(26)
MAD
t
= MAD
t1
e [ [ MAD
t1
( ): (27)
Tracking signals, TS:
TS =
P
e
MAD
t
: (28)
Where:
A
i
true value;
F
i
prediction value;
n period;
t i period.
4. Description of cases
The notebook computer industry involves issues related to supply and demand
uncertainty. This study has suggested two operational models for the notebook computer
industry (Companies A and B), as described in Sections 4.1 and 4.2, to function as the test
criteria of the model in Section 3.
4.1 Door-to-Door Direct Shipment to End User Model: notebook computer
manufacturing industry
The Door-to-Door Direct Shipment to End User Model was formed due to the demands
from OEM (original equipment manufacturing) customers for service close to their
markets. The aim was to reduce lead time and the loss of inventory price reductions by
offering customised finished goods and door-to-door shipments to OEM customers. This
model mainly uses air freight. Transportation costs are higher to achieve timeliness. The
key to the supply chain management in this model is the management relationship among
OEM manufacturers, logistics companies and customers, as shown in Figure 1 (the solid
lines indicate logistical flows whereas the dotted lines indicate information flows).
According to this model, all the production processes are completed by Taiwanese
OEM manufacturers and all the products are directly shipped to the purchasers. This is
now the model most often adopted by Taiwanese notebook manufacturers. In this model,
international brand-name companies negotiate supply issues with component suppliers,
and the procurement of components is then taken over by Taiwanese manufacturers. As
this model involves transportation services, it may boost profits. For international brand-
name companies, this model eliminates the burden of inventory.
International Journal of Production Research 3031
Taiwanese manufacturers do not ask their parts suppliers to set up dispatch centres
close to their manufacturing or assembly facilities. When Taiwanese manufacturers have
demands for components, the dispatch centres of their suppliers ship products directly to
the Taiwanese assembly plants for the final manufacturing or assembly of products.
Therefore, with this model, distributors or consumers place orders with international
brand-name companies to fill their demands and international brand-name companies
transfer these orders to local assembly plants established by Taiwanese manufacturers
close to the markets. Regional assembly plants complete the product assembly and ship
products to end-consumers directly through professional logistics companies.
Before May 2002, the factories of Company A produced nearly all the computers in
Taiwan and China. Other parts that required localisation, such as keyboard and packaging
parts, were assembled in local facilities. After August 2002, in order to reduce R&D and
part costs, as well as shorten the shipment time, Compaq asked its suppliers of key
components, including hard-disks and CD-ROMs, to modularise their production by
developing modules common to many models. The previous model of the shipment of the
completed computers was changed into the separate shipment of bare-bones and
modularised components to be assembled by the assembly plants. The first to try this
model was a factory in Scotland. However, factories in Asia Pacific and the US still
shipped completed computers most of the time. Only a few shipments to US government
agencies are in modularised operations. For Company A, such a change required a strong
capability in assembly and testing in all the assembly plants. It meant that operational
expenses were higher. As far as the order-fulfilling efficiency was concerned, if parts could
be ready, Company A could manage to complete orders within two days without major
difficulties. However, as the readiness of parts from suppliers is related to the shipment
forecasts provided by OEM customers, if the discrepancy between the forecasts and
timing of orders is too significant, it is not easy for suppliers to fully comply, which affects
order-fulfilling efficiency.
Figure 1. Door-to-Door Direct Shipment to End User Model of operational method.
3032 S.-T. Wang
4.2 Direct Shipment after Manufactured Model: notebook computer
manufacturing industry
The goal of the Direct Shipment after Manufactured Model is to reduce lead time and the
losses associated with inventory price reductions. In addition, OEM customers demand
customised services and door-to-door direct shipment. This model often employs a
combination of air freight and marine transportation. It is a major challenge to deal with
operational cycles and coordination of logistics, as shown in Figure 2 (the solid lines
indicate logistical flows whereas the dotted lines indicate information flows).
The greatest difference between the Direct Shipment after Manufactured Model and
the Door-to-Door Direct Shipment to End User Model is that the former accepts orders
from international brand-name companies, but provides only bare-bones products and
does not complete the final assembly. Products are shipped to the assembly plants of
international brand-name companies for final assembly and software installation. The
international brand-name companies ship products directly to distributors or consumers.
Dell is one company that adopts this model with its Taiwanese OEM manufacturers.
To reduce the loss of inventory price reduction for components, Dell came up with the
concept that notebooks should not be shipped out of factories in complete units. Rather,
Company B should work with other suppliers to develop ways to modularise hard-disks so
that it was easier to insert CPUs into motherboards during the subsequent assembly
process. Therefore, Company B changed from the shipment of completed notebooks to
separate shipments of bare-bones and component modules to the assembly plants assigned
by Dell so that Dell does the final assembly and software installation. This model not only
created more flexibility for Company B, but also enabled it to avoid the risks associated
with the price reduction of components. This was the result of Dells creativity, Company
Bs research efforts and the support of the suppliers. Company B was able, within a very
short time, to ship notebooks of different models from its factories within two or three
days. This impressive outcome was the result of the modularisation of key components.
This strategy was, in fact, very similar to that employed in the modularised production
of desktops. Hard-disks, CPUs and CD-ROMs are such examples. When these
manufacturers worked with Dell in 19951996, Company B had already started the
development of components with suppliers. Later, Dell used this same model of the
modularisation of key components. Under this model, after receiving orders from
customers, Company B assembled the modularised components and conducted product
tests; the preparation of the shipment was largely done. Before the placement of orders,
OEM customers always provided the forecast shipments of individual models for different
regional markets based on a 16-week outlook. Therefore, the production of modularised
components was a preparation to allow more buffers in the final shipment of products.
4.3 Comparison of different shipment models
This study decided to compare the quantitative parameters of the Door-to-Door Direct
Shipment to End User Model (producing eight kinds of products) and the Direct Shipment
after Manufactured Model (producing two kinds of products), as shown in Table 1.
According to Sections 4.1 and 4.2, as well as Tables 2, 3, and 4, unit product prices,
processing costs, inventory cost, and lead time of purchase and customer demand
deviation estimated by the Door-to-Door Direct Shipment to End User Model were
International Journal of Production Research 3033
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i
g
u
r
e
2
.
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i
r
e
c
t
S
h
i
p
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e
n
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a
f
t
e
r
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a
n
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a
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t
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d
.
3034 S.-T. Wang
Table 1. Parameter relationship between Door-to-Door Direct Shipment to End User Model (1)
and Direct Shipment after Manufactured Model (2).
Product
price
Processing
cost
Lead time
of purchase
Inventory
cost
Standard
deviation of
customer demand
(1)
P
h
i
= v
i
P
h
1
i
v
i
_ 1
i = 1, 2, . . . , 8
t
h
i
m
= x
i
t
h
1
m
x
i
_ 1
i = 1, 2, . . . , 8
m = 1, 2
L
h
i
m
= y
i
L
h
1
m
y
i
_ 1
i = 1, 2, . . . , 8
m = 1, 2
H
h
i
m
= z
i
H
h
1
m
z
i
_ 1
i = 1, 2, . . . , 8
m = 1, 2

h
1
,
h
2
, . . . ,
h
8
(2) P
l
1
= P
l
2
t
l
1
m
= t
l
2
m
m = 1, 2
L
l
1
m
= L
l
2
m
m = 1, 2
H
l
1
m
= H
l
2
m
m = 1, 2

l
1
,
l
2
Relative
relationship
P
h
i
=
1
P
l
i

1
_ 1
t
h
1
m
=
2
t
l
m

2
_ 1
m = 1, 2
L
h
1
m
=
3
L
l
m

3
_ 1
m = 1, 2
H
h
1
m
=
4
H
l
m

4
_ 1
m = 1, 2
(
h
1

h
2,
. . .
h
8
)
_ (
l
1

l
2
)
Table 3. Direct Shipment after Manufactured Model (non-linear demand) customisation degree
and grey relational ranking.
Factor
Years
2000 2001 2002 2003 2004 2005 2006
0i
(ranking)
k 37.5% 51.5% 70.4% 83.3% 86.4% 87.1% 87.9%
HI 3380 3600 3690 3720 3800 3900 3910 0.69(3)
BI 1780 1890 1930 1990 2000 2090 2130 0.71(1)
SI 1200 1050 950 900 880 770 730 0.57(5)
DI 8500 7610 7260 6960 6800 6700 6680 0.61(4)
P
k
i
(M) 24,000 24,800 26,800 28,000 28,200 28,250 28,320 0.71(1)
Table 2. Door-to-Door Direct Shipment to End User Model (multi-linear demand) customisation
degree and grey relational ranking.
Factor
Years

0i
(ranking) 2000 2001 2002 2003 2004 2005 2006
k 56.4% 65.5% 69.8% 80.3% 85.1% 88.6% 92.6%
HI 3480 3680 3720 3780 3820 3930 4300 0.82(3)
BI 1800 1900 1960 2010 2060 2110 2170 0.83(2)
SI 1000 950 850 740 710 650 630 0.56(5)
DI 8520 7620 7280 6980 6810 6730 6700 0.66(4)
P
k
i
(M) 31,500 32,700 33,100 35,200 36,210 37,200 39,360 0.87(1)
International Journal of Production Research 3035
higher. Thus, based on the calculation of Equation (12) and Equation (15), the model
would result in a higher customisation degree.
4.3.1 Critical factors of grey relational order on customisation degree
This study calculated the common factors of the Door-to-Door Direct Shipment to End
User Model (multiple linear demand) and the Direct Shipment after Manufactured Model
(non-linear demand) by grey relational order and realised that product price was the most
important factor on customisation degree. Silveira et al. (2001) suggested that mass
customisation aims to provide customised products and services by high output and
reasonable prices in a flexible process. From the manufacturers perspective,
Mukhopadhyay and Setoputro (2005) suggested that modelling design and goods return
would increase customer demand to reinforce customisation degree; however, it would also
increase the manufacturers costs; thus, this study suggested that product price is the
critical factor on customisation degree. The second critical factor affecting the
customisation degree is the inventory cost of a buffering zone. This study suggested that
when the inventory cost of a buffer zone is high, customisation degree of the products
Table 4. Comparison of different distribution deviation.
1 normal distribution deviation 1 Poisson distribution deviation
1 Poisson
distribution
deviation
2 Poisson
distribution
deviation
3 Poisson
distribution
deviation
1 normal
distribution
deviation
2 normal
distribution
deviation
3 normal
distribution
deviation
Direct Shipment after Manufactured Model
1590000 397,500 683,700 858,600 397,500 556,500 588,300
1840000 460,000 791,200 993,600 460,000 644,000 680,800
2180000 545,000 937,400 1,177,200 545,000 763,000 806,600
3560000 890,000 1,530,800 1,922,400 890,000 1,246,000 1,317,200
4780000 1,195,000 2,055,400 2,581,200 1,195,000 1,673,000 1,768,600
6620000 1,655,000 2,846,600 3,574,800 1,655,000 2,317,000 2,449,400
8160000 2,040,000 3,508,800 4,406,400 2,040,000 2,856,000 3,019,200
Augmentation
of demand
standard deviation
A1 =35,050,600 A2 =27,868,100
3 normal distribution deviation 3 Poisson distribution deviation
Door-to-Door Direct Shipment to End User Model
1800000 666,000 1,152,000 1,422,000 972,000 1,350,000 1,422,000
2600000 962,000 1,664,000 2,054,000 1,404,000 1,950,000 2,054,000
5580000 2,064,600 3,571,200 4,408,200 3,013,200 4,185,000 4,408,200
9960000 3,685,200 6,374,400 7,868,400 5,378,400 7,470,000 7,868,400
13580000 5,024,600 8,691,200 10,728,200 7,333,200 10,185,000 10,728,200
15960000 5,905,200 10,214,400 12,608,400 8,618,400 11,970,000 12,608,400
25730000 9,520,100 16,467,200 20,326,700 13,894,200 19,297,500 20,326,700
Augmentation
of demand
deviation
B1 =135,378,000 B2 =156,436,800
Multiple B1=A1 = 3:83 B2=A2 = 5:61
3036 S.-T. Wang
would be lower since more inventories in the buffer zone meant that the manufacturers
could not respond to customer demand immediately, as shown in Tables 2 and 3 (Tu et al.
2001, Berman 2002).
4.3.2 Comparison of demand deviation for different models
Customisation degree of the Door-to-Door Direct Shipment to End User Model in this
study was higher. Thus, there were eight kinds of products with more customer demand
deviation. After interviewing the companies, this study decided to use three fixed standard
deviations to decide demand prediction bias. According to Table 4, when demand
uncertainty was higher (higher standard deviation), there would be more customer
demand; customisation degree of the Direct Shipment after Manufactured Model was
lower. In this study, there were two kinds of products with less customer demand
deviation. Thus, after interviewing the companies, this study used one standard deviation
to determine demand prediction bias. Based on three standard deviations of normal
distribution and Poisson distribution, the predication of customer demand was more than
one standard deviation by 3.83 to 5.61 times, as shown in Table 4.
4.3.3 Parameter analysis and dynamic customisation degree decision
According to Tables 5 and 6, with the same parameters, when product price [P
k
i
] is higher,
the product customisation degree would be higher. Thus, with booming business, the
companies should have a manufacturing strategy with a higher customisation degree; the
reduction of inventory cost in a buffer zone could increase customisation degree since
a higher customisation degree would result in less inventory in the buffer zone. The
inventory flow of the products would be faster. According to (BI ) reducing the interval of
costs in the buffer zone shown in Tables 5 and 6, in different situations, the customisation
degree could reach a 100% interval.
In the Door-to-Door Direct Shipment to End User Model in Table 5, the cost of
dynamic customisation degree of the business is: B=NT $981,080 (sum of the average
total costs in Table 5). At present, most of the consumers demand a higher customisation
degree. Thus, static customisation degree E=NT$ 1,037,080 (NT$ 207416 5),
EB=NT$ 56,000. According to the Direct Shipment after Manufactured Model in
Table 6, dynamic customisation degree B=NT$ 753,480 (sum of the average total costs in
Table 6). Most of the consumers demand for higher. Thus, static customisation degree
E=NT$ 781,480 (NT$ 156296 5), EB=NT$ 28,000. According to the analysis above,
total costs of the dynamic customisation degree based on monitoring indicators were lower
than the total costs of a static customisation degree.
4.3.4 Predication comparison between this model and other research models
According to the figures obtained after interviewing the firms, the calculation of Tables 2
and 3, Equation (10), and Equation (13) predicted the amounts of customer demand in
the Door-to-Door Direct Shipment to End User Model and Direct Shipment after
Manufactured Model. According to TS in Tables 7 and 8, estimation bias indicated by this
study was shown in Equation (28) which was acceptable and better than modified
Equation (24) indicated by Lau and Lau (2003). After comparing the actual demand and
International Journal of Production Research 3037
actual net income of the two models, the Direct Shipment after Manufactured Model
revealed higher values.
5. Results and future research
The results of this study are as shown below:
(1) This study compared the construction of different customisation degree models
between the Door-to-Door Direct Shipment to End User Model and the Direct
Shipment after Manufactured Model and assumed that the ordering cycle of
Table 5. Dynamic customisation decision of Door-to-Door Direct Shipment to End User Model.
Product price [P
k
i
]
Customisation
degree
Mean of
customisation
degree
(monitoring indicators)
BI reducing
interval
Average
total cost
=
P
i
P
k
i
0:8
Original prices in
20002006 2000
63.2% 84.1%
(red)
BI: reducing
1100
207,416
72.6%
77.1%
87.7%
92.6%
96.1%
99.9%
Original prices in
20002006 1000
59.8% 80.5%
(yellow and
Red)
BI: reducing
1300
201,816
69.1%
73.5%
84.0%
88.8%
92.3%
96.2%
Original prices in
20002006
31,500 56.4% 76.9%
(green)
BI: reducing
1700
196,216
32,700 65.5%
33,100 69.8%
35,200 80.3%
36,210 85.1%
37,200 88.6%
39,360 92.6%
Original prices in
20002006 1000
53.0% 73.3%
(blue and
yellow)
BI: reducing
11000
190,616
62.0%
66.2%
76.6%
81.4%
84.9%
89.0%
Original prices in
20002006 2000
49.7% 69.7%
(blue)
BI: reducing
11350
185,016
58.5%
62.6%
72.9%
77.6%
81.1%
85.4%
Note: unit is NTD.
3038 S.-T. Wang
demand uncertainty met the Poisson distribution and that demand met normal
distribution, as shown in Equation (9). According to supply uncertainty in Sections
4.1 and 4.2, based upon the definitions of parameters and customisation
introduced in Section 3, this study compared the parameter changes among the
costs, and customisation degree models and analysed the influence of parameter
changes on the firms by managerial meetings in Section 4.3. According to data and
calculation of Tables 7 and 8 in Section 4.3.4, this study showed that the Direct
Shipment after Manufactured Model revealed higher net income. The reason was
that the model involved the orders of several computer companies. Thus, there
Table 6. Dynamic customisation decision of Direct Shipment after Manufactured Model.
Product price [P
k
i
]
Customisation
degree
Mean of
customisation
degree
(monitoring indicators)
BI reducing
interval
Average
total cost
=
P
i
P
k
i
0:8
Original prices in
20002006 1000
44.4% 79.3%
(red)
BI: reducing
1300
156,296
58.6%
77.7%
90.7%
93.9%
94.6%
95.4%
Original prices in
20002006 500
41.0% 75.7%
(yellow and
red)
BI: reducing
1500
153,496
55.1%
74.0%
87.0%
90.1%
90.9%
91.7%
Original prices in
20002006
24,000 37.5% 72.0%
(green)
BI: reducing
1700
150,696
24,800 51.5%
26,800 70.4%
28,000 83.3%
28,200 86.4%
28,250 87.1%
28,320 87.9%
Original prices in
20002006 500
34.1% 68.3%
(blue and
yellow)
BI: reducing
1950
147,896
47.9%
66.7%
79.6%
82.6%
83.3%
84.1%
Original prices in
20002006 1000
30.7% 64.7%
(blue)
BI: reducing
11200
145,096
44.3%
63.0%
75.8%
78.9%
79.6%
80.4%
Note: unit of cost is NT $.
International Journal of Production Research 3039
T
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3040 S.-T. Wang
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International Journal of Production Research 3041
were more demands. Besides, product customisation degree was lower and it was
proper in the non-linear demand model. The Door to Door Direct Shipment to
End User Model involved a higher customisation degree, but lower customer
demand (Chen 2006). The reason was that the manufacturers in this model only
accepted the order of one computer firm; thus, it was proper in multiplying the
demand model.
(2) In order to validate the legitimacy of the models, this study used the figures of
notebook computer companies A and B for two models from 2000 to 2007 as the
base. Since there is a lack of literature on dynamic customisation degree, this study
followed the research models indicated by Lau and Lau (2003) for evaluating the
performance. Upon the estimation in Section 4.3.4, the results of Tables 7 and 8
demonstrated that the demand prediction model of customisation degree in this
study was better than that of Lau and Lau (2003).
(3) The study constructed the dynamic customisation degree of the model (considering
the total scores of monitoring indicators of the Council for Economic Planning and
Development) to make the model suitable for industries in manufacturing business
with a high level of customisation to function as the criterion for other industries.
This study compared the construction of different degrees of customised models
between the notebook computer industries of two different operations. The models
involved the average price of product i, upon the customisation degree of the Mth
co-manufacturing process of the supply chain, as shown in Equation (1), where demand
uncertainties met the Poisson distribution and normal distribution, as shown in Equation
(9). Section 3.3 shows the construction of both multiple and non-linear customisation
models; in Section 3.4, through grey relational analysis, this study compared the influences
of different factors on the customisation degrees of different models; and in Section 3.5,
with regard to the dynamic construction of customisation degrees and business
assumptions, as based on the total scores from monitored indicators by the Council for
Economic Planning and Development (ROC), this study divided business into five levels:
blue (recession), blue and yellow (unsatisfactory business), green (stationary business),
yellow and red (slightly prosperous business), and red (overly prosperous business). In
Section 4.3, this study described the managerial definitions as the criteria of notebook
computer industries. This study suggested views different from other related research
regarding the construction of dynamic customisation degree models, and the applications
of different factor analyses in notebook computer industries (Lau and Lau 2003, Baba
et al. 2009, Brun and Zorzini 2009, Kumar and Wilson 2009).
Future researchers can treat the mathematical model in this study as the criterion,
consider different uncertainties of varied production and delivery, include different
parameters and modifications and simulate the analytical results of the figures to provide
suggestions for management decisions in the firms.
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