One example: a successful standardization initiative with a focus on production processes causes the capacity utilization of some of the production lines to rise significantly as time goes by while the utilization of other lines declines rapidly. At some point, the question concerning the justification for these lines and their products is sure to come up. If savings are to be achieved, these lines must be decommissioned and the pertinent products either produced on the standard lines or released for discontinuation. The sales department will always seek to keep the products in the portfolio because customers want to place the primary orders solely in combination with these exotic products. This is precisely the point where the question arises regarding what is to be done with these customers and the exotic products. Is the customer willing to pay for these exotic products or not? If not, management must decide if it wants to risk the loss of the customer. A decision against taking this risk torpedoes the standardization initiative. If the decision is made to let the customer go, the lost profit must be less than the savings effects achieved by discontinuing the exotic products.

Classic standardization prevents learning effects within the company

A successful standardization initiative focusing on purchasing material leads to a consolidation of suppliers and quantity discounts. The economies of scale and scope are now primarily in the suppliers’ business – and that is precisely where they must be realized by the purchasing department. The elimination of custom solutions results in the loss of turnover, which can be compensated by increased maneuvering room when prices for the defined standard products must be determined. This gives rise to a conflict of goals between turnover and return which must be clearly defined at the beginning of the project. The sales staff must adjust its sales policies (pricing) accordingly so that the turnover can be compensated.

But standardization is not “good” until the dichotomy between customer wish expectation on the one hand and customer wish fulfillment on the other has been resolved. Every company must resolve this dilemma in advance before it can begin the implementation. 

Companies frequently choose the easy road to cost reductions via purchasing, demanding or triggering standardization by suppliers. But standardization per se does not lower costs. Follow-up measures are necessary: turnover growth while maintaining a constant capacity line or reducing personnel, disinvestment, and purchase bundling. These unpopular measures are usually shifted to suppliers by using the vehicles outsourcing, off-shoring, and module production and skimmed off by the company’s own purchasing department.