The price of responsiveness: Cost analysis of change orders in make-to-order manufacturing

The ability to produce goods according to customers' specifications may be an important competitive advantage, but it exposes manufacturers to the risk of customers requesting changes in their specifications during the fulfillment of their orders. Manufacturers often accept these change orders in the name of customer service despite the fact that they incur additional costs. This study uses empirical data and activity-based costing to explore the real values and the accrual mechanisms of change orders' costs. The results show that the total costs are considerable, but the analyses also reveal opportunities for cost savings through the categorization of change orders, time fencing techniques, and improvements in information processing. ► This study reveals the costs that customers. ' change orders incur to an MTO manufacturer. ► Costs are determined by the product, timing and the type of the change. ► Costs can be reduced with product and process modularity. ► Costs can be reduced by investing in the swift processing of change orders. ► Costs can be reduced with order freezing policies that vary among different types of changes.