My daughter bought a new car with a list of features in October, but she had to wait several weeks for the car to arrive. Local dealerships did not have a vehicle with those features on the lot. In fact, we visited two Hyundai dealerships just to find a 2012 Elantra to test drive. The first had an Elantra on the lot, but a local company had already prepaid for it. The second dealership had a 2011 model that had been driven 7,000 miles. The sticker price for the one-year-old model nearly matched the 2012 vehicle.
I'm seeing this trend not only at car dealerships, but also in electronics. When the iPhone 4S hit the market, Apple Inc. (Nasdaq: AAPL) asked consumers to "reserve" theirs online before arriving at the store to purchase and activate it. It's been suggested that companies like Apple may leave sales on the table because of on-demand manufacturing, but I think this may not necessarily be the case. It depends on the strength of the brand.
Some companies may lose sales when stock runs out, because customers won't wait or take extra steps to get the products. However, products that become a pop culture icon, such as the iPhone, generate so much hype that waiting three weeks to get one through AT&T Inc. (NYSE: T), or waiting in line for three hours at the Apple store, seems possible, if not probable.
For retailers, on-demand manufacturing has turned into on-demand ordering. More frequently, stores like Talbots.com deplete inventory, and consumers must wait a month as the retailer tries to replenish stock for something as ordinary as a white cable knit sweater. High-end retailers, such as Neiman Marcus, are pre-selling more items online before they're actually available to ship. Some items drop-ship directly from the manufacturer.
Companies could use on-demand manufacturing to moderate swings in demand/supply of finished goods and inventory by monitoring sales and pre-sales in specific areas. Maintaining, monitoring, and adjusting factory production in response to upswings and downslides in demand -- similar to the way businesses outsource IT, customer support, and call centers -- could help offset any erratic cycles.
The on-demand business model isn't new. Amazon.com Inc. (Nasdaq: AMZN) began the on-demand publishing revolution years ago. Brick-and-mortar stores selling clothing and other items slowly joined in an effort to provide consumers more choices without having to stock items in the store or even in warehouses. They could drop-ship the goods directly from the manufacturer. Sony Pictures Home Entertainment began making its collection of Screen Classics by Request available this year through Amazon's CreateSpace program.
Component shortages due to the Thailand floods could drive up hard drive prices soon -- not just standalone hard drives, but those built into Apple Macs, as well. We'll soon be pre-ordering hard drives, too, I guess. Toshiba has been affected, along with others. Western Digital CEO John Coyne recently warned that his company expects the flooding to hurt its manufacturing operations.
Will computer manufacturers begin buying components from manufacturers like Samsung Electronics Co. Ltd. (Korea: SEC) and others with operations outside Thailand? And what will become of this new twist in on-demand manufacturing?