OEMs, Retailers Push On-Demand Manufacturing

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, {complink 379|Apple Inc.} 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 {complink 502|AT&T Inc.}, 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 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. {complink 11480| Inc.} 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 {complink 4751|Samsung Electronics Co. Ltd.} and others with operations outside Thailand? And what will become of this new twist in on-demand manufacturing?

9 comments on “OEMs, Retailers Push On-Demand Manufacturing

  1. Parser
    November 8, 2011

    I think this trend is only due to very conscience investors. Unless there is a demand for a product no-one wants to put money out for production. The same is in startup companies. Investors look for startups which almost guarantee a success. 

    November 8, 2011

    First of all, judging by your photo there is no way you could be old enough to have a daughter that drives a car 😉

    I have seen a lot of this just in time manufacturing in larger items as suppliers do not want to take the risk of holding stock.  I reckon this trend will continue until the economy picks up and more people have cash to buy stuff.  then people will not want to wait for their goods and so suppliers will be forced to hold stock or lose the customer.

  3. jbond
    November 8, 2011

    This seems to be a trend lately. Even though this practice has been going on for years, with the economic turmoil starting in 2008, it seems more companies are looking at keeping limited inventory so they don't have too much money tied up on items sitting in a warehouse. There will be some companies that lose business by following this practice, but others will manage just fine. Like you said, if a person wants a particular brand or item, they will wait, just not wait forever. 

  4. Barbara Jorgensen
    November 8, 2011

    In my experience, on-demand works best for digital content, but still faces challenges in the hardware arena. Until one organization–such as a distrbutor–is willing to take on 100 percent of the risk of holding inventory, there will always be glitches that interefere with a true one-demand model. That said, it would eliminate a lot of problems in the supply chian if properly executied.

  5. arenasolutions
    November 8, 2011

    It's interesting you mention this, I've been talking about this a lot with my CTO at Arena as it relates to the viability of open-design. Manufacturers getting their start on sites like Kickstarter have relied on pre-committed orders and the on-demand model to grow business. We were thinking this could turn into a path where an open-design, on-demand model makes sense for some OEMs. For example, if you had a machine shop, you could publish a catalog of community-created open designs, and allow pre-paid demand to drive your production schedule, this would be a great way to get interesting, innovative products to the customer as needed.

    Here's the full article if you're interested (but it's more about open-desin than on-demand.)

  6. prabhakar_deosthali
    November 8, 2011

    On demand manufactruing is good for the supply chain as a whole because there is no dead inventory of the finished product at the manufacturer's end. For the ramaining supply chain , agile systems are required to keep up with  the fluctauing and just in time demands of componenets from the manufacturers.

    For customers, on demand manufactruing means they need to order first, based upon ,not seeing the real product but based upon the product catelogues. The customers will be blocking their money by making advance payments with the order.

    So the factories will be running on custmer's money taken upfront alongwith the orders.

  7. Daniel
    November 9, 2011

    Laurie, in an economic slowdown situation most of the companies may prefer on demand manufacturing. During the slow down period, the spending power and cash rotations are less and none of the manufacturing centre will go for huge capital investments. They prefer on on-demand manufacturing or assembling policy. The market mantra is “Demand Vs production’

  8. t.alex
    November 11, 2011

    I think for hardware-based products, it requires tight control of inventories, supplies, as well as precise prediction of market demands. Practising Just In Time manufacturering is not simple.

  9. Tim Votapka
    November 13, 2011

    On-demand manufacturing, eh? Maybe I'm too cynical. I don't see how the channel benefits short or long-term. What are purchasers/engineers saying?

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