Manufacturing’s new world order: The rise of the point-of-demand model

Published: September 12, 2017

Executive summary

In the next manufacturing revolution, spurred on by technologies that reinvent the way a factory can create products, such as 3D printing and robotics, companies will also need to rethink what they make and where they make it. Products will come off the assembly line in small, highly customized batches, like a high-tech version of old-fashioned craftsmanship. The revolution is on its way, and within the next five to 10 years, manufacturers in all industries will find themselves in a race to efficiently produce products at the point of demand — that is, where their customers are — and to deliver these items when their customers want them, personalized to their customers’ individual tastes. They will have to make strategic choices to stay competitive, investing in technology that allows them to continually analyze data about their customers’ preferences and buying habits so they can adapt quickly to changes in market conditions. Factories will be smaller, operating with minimal lead times and shorter value chains. Management will be decentralized, the supply chain will be simplified and shortened, and the distance separating the manufacturer from its customers will be sharply reduced.

Although technology will enable this new manufacturing model, customers will compel its adoption. In emerging markets as well as developed regions, customers increasingly expect products that match local cultural preference rather than homogeneous global brands and business-to-business services. The auto industry pioneered this localized model as long ago as the 1980s, when Japanese automakers entered the U.S. market with cars tailored to American tastes. But only recently have other industries taken up this approach — with refrigerators, toothpaste, furniture, clothing, and software that are designed for each region. The popularity of e-commerce has changed the customer experience, giving people more information about products and competitors’ products, pricing, and, through peer reviews, quality. For the first time, customers can reasonably demand from mass producers products that look and feel like they were made next door.

Nimble manufacturers will reap significant gains from the point-of-demand model. As their supply systems become more responsive and as local customer demand becomes less of a guessing game, inventory inefficiencies and the carrying costs of having to warehouse products in bulk will decline. The expense of supply chain management and production planning will drop as well. And companies able to produce personalized products that are best suited to customer needs when customers want them will enjoy higher sales margins. By contrast, as point-of-demand manufacturing takes hold, companies that operate global factory networks with large centralized plants, managed by traditional operating systems, organizations, and processes, may find that their business models are outmoded.

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Conclusion

Companies have intuitively known for many years that product personalization was an inevitable progression of modern manufacturing. Indeed, the concept of mass customization, which has been around for a few decades, is an early, even primitive, attempt to implement a more personalized manufacturing and service environment and respond better to customers. A car owner could customize a vehicle to a certain extent by choosing such features as colors, engine size, and transmission type, for example. The system wasn’t very sophisticated, but because technology had not quite caught up with the ambitions for personalization, manufacturers could dabble in mass customization without a full commitment to a new production paradigm.

That’s no longer the case. Technological advances and digital developments are emerging and spreading throughout the manufacturing environment so quickly that point-of-demand production is inevitable in virtually every industry; indeed, it’s already being implemented. Eventually this will lead to cars made by companies like Local Motors — but also Toyota, Honda, and GM — being self-designed by adventurous consumers and built on 3D printers. And as customers taste the benefits of real product personalization, they will demand more of it, driving higher margins to companies that are equipped for customization and forcing all manufacturers to develop those capabilities if they hope to survive. In the end, companies that are prepared for the point-of-demand manufacturing phenomenon will thrive. But they must begin now to rethink their long-term manufacturing strategies and to implement the processes, systems, and technologies that will completely alter the way they interact with customers, make production decisions, establish factory footprints, and compete in their industries.

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Manufacturing’s new world order: The rise of the point-of-demand model

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