Co-production | Customers, Etc.

Would you invite your customers into the production process?

Jun 23, 2022

Imagine you own a business that produces wooden furniture based on a standard set of designs. You specialize in dining sets, selling relatively few products at a high volume of production. Customers are willing to wait six weeks to receive their order because your products are in such high demand. Because the tables and chairs are standardized, there are no customization options for customers to choose from. Once they place their order, their only role in the process is to wait (and occasionally reach out to check on the status of their order).

One day, you receive an email from an enthusiastic customer asking if they can visit the factory where their order is being made. You don’t hear this very often, so you decide to accommodate their request. You’re out of town the day the customer plans to stop by, so you give a heads up to your office manager and ask them to give a brief tour to the customer when they arrive.

A few weeks go by and you’ve almost forgotten about the exchange when the enthusiastic customer emails you asking about a problem with their order. They mention that the custom lettering they had requested on their chairs looks off and isn’t what they were expecting. “Custom lettering?” you wonder. What are they talking about?

When you ask the office manager about the visit, they don’t know about the custom lettering, so you head to the shop floor. When you mention the order, the foreman gets really excited. “Oh yeah, I remember that customer. They absolutely loved our work. They got into a long animated discussion with one of the workers about doing some custom work. I loved the idea. We don’t get to do special projects like that so we were excited to give it a shot.”

While you appreciate his enthusiasm, this isn’t the kind of business you’re trying to run. “Look, I appreciate you going above and beyond to serve this customer, but we’re not set up for this kind of custom work.” You reset expectations with the shop floor and your office staff. While you’re happy to have visitors, you can’t accept accommodations to customer orders.

Looking at this fictional example, we can pretty easily see why a factory that’s set up like this wouldn’t want customers interfering in the production process. When you have a job to do, customers can get in the way and slow things down. And yet, many successful business not only tolerate customers getting involved the production process, they welcome it.

Services

When it comes to welcoming customers into the production process of the business, I’m speaking of course of businesses that provide services, which makes up nearly 80% of the US economy. While goods produced in a factory happen away from the customer, services are produced to varying degrees with the customer. Customers become co-producers in the value that the business is delivering to the customer.

There’s an excellent paper I’m reading for class called Breaking the Trade-Off Between Efficiency and Service that explains this concept nicely:

[C]ustomers aren’t simply the open wallets at the end of an efficient supply chain. They’re directly involved in ongoing operations. The fact that they introduce tremendous variability—but complain about any lack of consistency—is an everyday reality.

The paper continues:

Operations management theory, rooted in the manufacturing context, typically has only one thing to say about variability: It must be eliminated.

For services, it’s not so simple:

First, it wouldn’t be wise to drive out all variability; customers judge the quality of their experience in large part by how much of the variability they introduce is accommodated, not how sternly it is denied. Second, it wouldn’t be possible to do so. While manufacturers have virtually complete control over the cost and quality of their production inputs, service companies face this one, huge exception: Their customers are themselves key inputs into the production process. That form of input is, by its nature, capricious, emotional, and adamantly disinterested in the company’s profit agenda.

I highly recommend reading the paper. It covers five types of variability:

Arrival
Request
Capability
Effort
Subjective preference

For each of these types of variability, a business can choose accommodation or reduction with strategic variations each in the form of lost-cost accommodation and uncompromised reduction.

For the next several weeks—if I can find the time between preparing for class—I plan to explore some of the themes of the paper in this newsletter. Stay tuned!