What is High Variety Manufacturing (HVM)

What is High Variety Manufacturing (HVM)? Why is it important to define it? High-variety manufacturing is more than just a description of manufacturing processes; HVM is a business model that offers significant opportunities, but it also presents significant challenges. In order to take advantage of the opportunities and solve the challenges, it is necessary to recognize what HVM is and how it is reflected in your company.

A potentially bewildering range of acronyms and descriptors are variously used to describe marketing and manufacturing models that have a high degree of variability, variation, and variety:

• Mass customization
• BTO, build-to-order
• CTO, configure-to-order
• ETO, engineer-to-order
• ATO, assemble-to-order,
• HMLV, high-mix low-volume,
• Job shop
• Etc.

There is a problem, however, with lack of precision and definition with these terms and a limitation to the extent of a company's value chains that are described by them. I use the term high-variety manufacturing as an umbrella concept to cover all of these marketing and manufacturing models, framed by the critical idea that HVM is a business model that encompasses all of a company's value chains.

HVM is best-defined as a set of characteristics of which a manufacturer may exhibit any one or all.

• The sales process is complex and includes customer-driven design and configuration decisions.
• The products are highly configurable and the number of options and the configuration combinations are such that the demands for specific manufacturing routings, tasks, and materials can not be forecasted. The specific product and its manufacturing demands are not known until the order is received.
• The production value chain includes non-manufacturing activities such as project engineering; unique manufacturing documentation, such as drawings, generation; unique BOM determination; etc.
• The company's "product" is competencies rather than specific products. Examples are job shops and short-run or low-volume suppliers to OEMs.
• The company is a pure custom or project-based manufacturer.

So we return to the question of why it is important to define HVM. One of the most critical keys to success for implementation of any type business and process improvement initiative is alignment. That is, at a strategic and tactic level all business activities, from sales and marketing to product development and management to finance to production, are aligned with the business's objectives (and that those business objectives exist, of course). If, for instance, an initiative such as lean manufacturing does not recognize that project engineering and BOM and manufacturing documentation generation are part of the production value chain in HVM, the degree of success for that initiative is diminished.

Self-knowledge of one's business model and process are necessary to "maximize variety (sales) and minimize variation (production)."

The importance of a New Product Development process

A couple of recent conversations have re-enforced in my mind the need for a good, disciplined New Product Development (NPD) process for any company and for high-variety and mass customization manufacturers in particular. The danger of being used to variety and variability and having flexibility is that it is easy to say yes to just about anything. High-variety and mass customization do not absolve you from the need to understand what your competencies are, who your market is, and where your profitability arises.

The statistics regarding the benefits of a structured NPD program are quite dramatic. For instance, companies that use a disciplined NPD approach:

• are two and one-half times more likely to launch a successful product,
• will capture two times the market share, and
• will generate two times the profit.

(from the Product Development and Management Association, http://www.pdma.org/, Best Practices Study)

A job shop may say that they don't have a "product," just capabilities or services that they sell to their customers. In reality both those services and the types of parts they produce on a regular basis are products within a NPD definition. The decision to add a new service or take an order for a new type of part should be just as carefully considered as the development and marketing of a product product by a mass-production manufacturer.

This is a link to a white paper on my website that may be useful to any manufacturer looking at implementing or improving an NPD program.

New Product Development - A Cornerstone of Competitive Strategy

Additional materials are available upon request.