Manufacturing Variety: Economies of Scope in a Low-Volume, High-Mix Environment

Abstract

Increasingly, the Holy Grail in manufacturing is the ability to combine the flexibility of customized production with the efficiency of mass production to achieve “mass customization.” Our research has identified an innovative method of customized manufacturing in an unlikely place – contract manufacturers that provide electronic manufacturing services (EMS). We conduct an in-depth case study of two EMS firms in the Pearl Delta Region of China who have created value-added by providing variety in production to their customers through adaptive, or flexible, manufacturing techniques. The firms’ success in these techniques is derived from investment in repeatable and robust routines, rather than from low-cost labor or from high tech equipment. Specifically, by investing in organization and technological routines in three key areas – customer relations, supplier relations, and labor relations – the EMS providers are able to create a production process that is relatively independent of changes in customers and workforce as well as changes in the design, technology, and markets of the products they produce.

Keywords: Contract manufacturing, mass customization, networks, China, electronics, flexibility

JEL Classification: L63, O32, L25, L14, O14