Customer Service Level in a Lean Inventory under Mass Customization

Mass customization (MC) aims to satisfy customers’ diverse demands with attractive product prices and short customer waiting time by adopting advanced management and manufacturing technologies. Theoretically, mass customization does not permit any stock of finished goods (FG). This optimal target can be achieved if there is a rapid and efficient supply chain to respond to the demand and production instantaneously. However, uncertainty and unpredictability from customers, suppliers and manufacturing systems make it a challenging goal. If there is no FG inventory available for some impatient customers, lost sales may result and customer service level will be affected. Customers become involved in an MC facility at the decoupling point, where the push line gives way to the customizing, pull line. At this point, maintaining a small stock of semi-finished goods of the most popular product variants is beneficial for quickly customizing and delivering to the customers. However, we need to pay careful attention to these semi-finished and finished goods inventories because of the high holding and maintenance costs, and the obsolescence and depreciation of stocks. In Lean manufacturing, inventory is minimized to avoid waste. Following this principle, we design a lean inventory for mass customization that does not consume too many resources or physical spaces. This inventory should have a product variety sufficient to meet customers’ rapid evolving preferences. We model this lean inventory consisting of n inventory locations, with m different product variants stored in the inventory. We assume an inventory location has equal probability l/m to hold any one of these m variants. We define the lean inventory as dynamic because a customer arrival pattern and replenishment policies are introduced into the inventory. We assume there are one customer arrival and one delivery in each time step or each cycle. Within one cycle, a customer arrives and searches for their desired variant. If the variant is found, it is withdrawn and is replaced by another randomly selected variant. If the variant is not found, the sale is lost and there is no replacement. In this paper, our research objective is to investigate the customer service level of lean inventory under mass customization. Customer service level is defined as the average probability of finding a customer’s desired variant from the lean and dynamic inventory. We successfully apply combinatorial mathematics in developing a mathematical expression for calculating this probability. This will enable inventory practitioners to understand the relationship between customer service level, number of inventory locations (inventory capacity) and number of product variants (product variety). For example, if inventory managers want to achieve targeted customer service level, they can balance inventory capacity and product variety using our expression. They can either increase inventory capacity and have more inventory units, or decrease product variety and have fewer kinds of variants in the inventory.