The Millennial generation has got used to living in an on-demand world. They buy food on demand, hire cabs on demand and even take exams on demand! It was only a matter of time before the manufacturing industry jumped to the on-demand bandwagon as well. The truth is that there is a significant upside to on-demand manufacturing for smaller retailers. However, as far as the big companies are concerned, they would be better off with the current system in place. This is the reason why you donít often hear the term on-demand manufacturing in the media. However, in this article, we will have a closer look at the concept of on-demand manufacturing as well as its advantages and disadvantages.
What Is On-Demand Manufacturing?
On-demand manufacturing is a new system of manufacturing. The earlier system used to rely on products with standard specifications which had to be mass produced and stored. Since both mass production as well as mass storage are expensive, bigger companies have traditionally held the upper hand in manufacturing.
However, all this is about to change with the advent of on-demand manufacturing. With the advent of technologies like 3D printing, it has now become possible to manufacture even smaller quantities of materials cheaply. The era of huge minimum order quantities seems to have gone by. Also, it is important to know that the era of lead times is also about to disappear. On-demand manufacturing works when the systems of the vendor and the buyer are interconnected. The system works only if orders can be rapidly placed.
Hence, the need for economies of scale as well as standardization has been negated. If proponents of this technique are to be believed, giant factories and warehouses will soon be a thing of the past since on-demand manufacturing has so many advantages. Some of these advantages have been listed below.
Advantages of On-Demand Manufacturing
- Level Playing Field: The on-demand manufacturing system provides a level playing field to big companies as well as the smaller ones. This is because there is no need to mass produce products as the per unit prices do not go down significantly. The end result is that a few small companies cannot really dominate the market. More competition means more innovation and the end result is that customers can be provided with products which are innovative as well as lower-priced.
- Testing The Markets: On-demand manufacturing works well for companies such as apparel and retail where customer tastes and preferences are rapidly shifting. As per the traditional model, these companies require anywhere between six to nine months in order to take a product to market. Hence, they have no choice but to estimate demand based on certain assumptions. If the estimate proves to be wrong, manufacturers end up with excess stock which lies unsold in their godowns. With the advent of on-demand manufacturing, the lead time can be reduced to less than a month. This allows companies to send small lots to the market. Based on the sales of these lots, companies can decide whether or not they want to produce more and if so in how much quantity. Since mass manufacturing is not necessary, products can be repeatedly produced as and when required in order to meet the needs of the consumers.
- No Need for Markdowns: The modern apparel industry has become used to markdowns and end of season sales. Such markdowns only happen because mass-produced goods lie unsold until the end of the season. Since on-demand manufacturing replaces mass production, it will also lead to the end of markdowns. These markdowns damage the brand image of the seller. Many customers do not buy products anticipating prices to be lowered during the markdown. As on-demand manufacturing becomes more prevalent, the era of the end of season sales might be about to disappear.
- Environment-Friendly: It needs to be understood that mass producing goods is also damaging to the environment. This is because when goods are mass produced more and more resources are consumed. Sometimes these goods are not even consumed, this means that the resources were not even utilized but simply wasted! On-demand manufacturing ensures that natural resources are only utilized when there is a genuine demand from the customers. Hence, on-demand manufacturing is a lot more environment-friendly than other modes of production.
- No Credit Risk: Lastly, there is also a huge financial benefit for not having to mass produce goods. Mass production creates a situation wherein the sales have to be pushed. Since sales are being pushed on to subsequent levels of the supply chain, credit sales have to be made. As a result, many companies find their money locked away in accounts receivables. More accounts receivables also mean that there is a higher chance of bad debts. On-demand manufacturing changes all this. There is no need for credit sales. Instead, in most cases customers pay upfront. Therefore, the need for working capital is completely eliminated.
The bottom line is that on-demand manufacturing is better from a financial, environmental and also from an operational point of view. It is only a matter of time before it becomes the most prevalent way of manufacturing all across the world.
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