Roles in Distributed Manufacturing

Defining a set of roles to simplify contracting

TL;DR

• I’ve made a list of the roles that may need to be taken into account when setting up contracts for distributed/decentralised manufacturing
• The Internet of Production Alliance is about to start some work on this topic — do get in touch if you’d like to contribute
• My suggestion is that a useful first step towards making DM contracting easier would be to define a standard set of terms that can be used to specify who is supposed to do what, along the lines of INCOTERMS

Setting the Scene

If you already believe that contracting for distributed manufacturing is a nightmare, you can skip this part.

Contracts to buy a ready-made item are generally quite simple: a buyer wants the thing, hands over money, and gets the thing. Manufacturing contracts are more complex because of the gap in time between placing the order and getting the products, and the risks that things will go wrong during that time — such as the products not being what was wanted, or arriving too late, or getting lost or damaged in transit. Manufacturing contracts are basically an attempt to clarify what is supposed to happen and manage the risk if things don’t turn out like that.

Distributed manufacturing essentially means making the same thing in different places. Instead of making ten thousand items in one factory and then shipping them around the world, you can make five hundred items in each of twenty factories located in different places around the world, and the actual products travel a much shorter distance to where they are needed. Throughout the article I’ll refer to this as DM.

So let’s imagine instead that there are twenty different companies in twenty different places round the world, all making the same item. If those items are being bought by consumers, they can just buy them from their nearest manufacturer or distributor and the contracting is simple. But there are lots of situations where the buyer may be centralised even if the usage of the items is geographically dispersed — and enabling this situation is crucial if DM is to become a viable part of the world’s production system. Imagine for example a company that manufactures some specialised piece of equipment used all over the world. Rather than maintaining inventory of spare parts in lots of different locations, they may prefer to have a number of quality approved suppliers who are able to make the spares on demand so that a customer who needs a particular spare can get it fast from the nearest manufacturing location. In a non-commercial example, imagine an aid agency that buys lots of handwashing stations to install in refugee camps around the world — if they can get them made close to the camps, they save on shipping time and expense and as a bonus are contributing more to the local economy where the refugees are. DM is not only useful at the global level: imagine a mountainous country that wants to ensure health centres in different valleys can always get PPE.

As responsive supply chains become a requirement and smaller-scale manufacturing becomes both economically viable and environmentally desirable, organisations around the world are experimenting with DM contracts. In theory, contracting for DM doesn’t need to be much more complicated than contracting for centralised manufacturing, although just the increased number of contracts will add some burden. In practice, we are seeing all kinds of new models springing up, both to take advantage of the benefits offered by distributed manufacturing possibilities and as an attempt to mitigate some of the challenges of doing it — so the contracting complexity skyrockets.

Ok, it’s a hot mess, so?

If we want DM to fulfil its promise and be accessible to organisations of all sizes — not just those with deep enough pockets for a team of in-house lawyers — we need to find ways to simplify the processes of constructing, monitoring, and executing the many contracts that will be needed in many different jurisdictions. If we can reduce the administrative and thus financial overhead from contracting, DM becomes competitive in more situations.

Ultimately, I can imagine there being some kind of modular database of contract terms from which you can pick and choose the relevant blocks to make up a contract that matches what the parties want to do, and templates that guide you through the process. We’re a long way from that at the moment, but it seems to me an obvious first step is to define the roles that either need to be or can be performed as part of the contract.

So what are the actual roles then?

Below is the current list. This will be developed and refined as we move forwards.

Just to be abundantly clear, these are roles that could be played by a person or an organisation. There can be multiple entities performing one role, and one entity can perform multiple roles. For the purposes of a contract, each entity would need to have the legal right to enter contracts in the relevant jurisdiction. This fact can in itself give rise to complications, with the need for proxies and MOUs, but this is not the place to go into that.

Demand-side roles

Buyer

Enters into the contract to purchase items and commits to pay for them (or ensure they are paid for).

Specifier

Takes on responsibility to properly specify what the product needs to be or do in order to be acceptable — approving the design and the quality criteria. Even if it is done by reference to a standards body (see independent roles, below), there is still a demand-side role needed to confirm which standards are required in order for the product to meet the buyer’s need.

Recipient

Receives the product and completes any delivery checks and formalities

Payer

The entity that pays for the products. Even if there is only one buyer, the actual money may come from different legal entities, accounts, or budgets.

User

Actually ends up using the product. Where this person isn’t also performing one of the other buyer-side roles, they tend not to be a party to the manufacturing contract — but finding ways to incorporate their views can offer ways to improve quality or reduce waste.

2. Intermediary Roles

Demand & Supply Matching

Performs the service of matching demand and supply or helping buyers and sellers to find each other.

Logistics

Moves and/or stores the items between seller and buyer, without taking title to the goods.

Quality Inspection

Verifies whether or not the products meet the defined quality criteria. Often done by the buyer, but we may see it commonly performed by an independent entity in DM situations.

Transaction Finance Provider

Provides cashflow or risk reduction to cover the period from when inputs to the manufacturing process have to be paid for, to when the delivery is complete and the contract price is due.

3. Supply-side Roles

Manufacturer/maker

Enters into the contract to supply the items and takes responsibility for the manufacturing process (even if they do little of it themselves). This is the seller and the entity that stands by the quality of the products.

Designer

Has created or developed the design to which the products are made. The role is listed as supply-side because it is needed to create the product, but there are plenty of situations where the entity that performs the role is the buyer.

Input owner

Provides some input to the manufacturing process. This would most commonly be a supplier of parts or materials, but could also cover anything from labour to a machine to a building in which the manufacturing takes place. Typically there is a separate purchase contract between this supplier and the manufacturer making the products (the buyer of the input), but there are a number of factors unique to DM that mean there is sometimes a need for them to be included in the same contract for the final goods.

Production Co-ordinator

Manages the co-ordination of the manufacturing process, such as making sure components and machines and labour are available at the right times.

4. Independent Roles

Reference Owner

Owns or maintains information that the contract refers to — for example, national product quality regulations, standardised specifications, hardware licenses. A designer may also fall into this category in some circumstances. Typically would not be a party to the contract or play a role in its execution, although they need to be considered because their work may be essential to the way the contract can be executed by others.

Conclusion & Next Steps

So that’s the list. The objective in refining this list will be to get to a set of roles that can be used:

• By the parties to DM contracts, to help them identify and communicate what they are expecting to do themselves and what they are expecting of others
• By those developing platforms or systems that aim to automate aspects DM, to think about what roles they may need to allow for
• By businesses & entrepreneurs, to think in different ways about what capabilities they may want to offer, and what partnerships it would be useful to have

INCOTERMS massively simplify the process of buying goods across borders — even before getting to the stage of contracting, just by establishing a common language for specifying what exactly is included in a quote. I’d like to explore whether the creation of a similar set of rules specifying what different parties are responsible for could help in the DM contracting sphere.

The Internet of Production Alliance is convening discussions on what open infrastructures may be needed to support contracting for DM. If you are interested to contribute to that, or to tell us about prior work we should be looking at, please get in touch via the contact form on the web page.