Manufacturing in the Age of On-Demand
What the New Service Economy Can Teach Our Oldest Industrial Sector
TL;DR: The On-Demand Economy is reshaping large chunks of the service sector by using software to change the cost structure of traditionally low tech businesses. Manufacturing has a lot to learn from these start-ups and the ecosystem is ripe for a similar disruption.
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Even if you’ve never heard of the “on-demand economy” there’s a good chance, you’ve used one of its services. Especially if you’re young, live in a city, and own a smart phone.
The term describes a new class of start-ups that use software to deliver better services, at lower costs and operate with far less overhead then their predecessors. While its biggest successes are barely five years old, the on-demand economy (ODE) is taking on large chunks of the service sector from transportation (Uber) and hotels (Airbnb) to restaurants (Munchery) and dry cleaners (Washio). There’s even an on-demand service to help you manage your on-demand services.
From a business perspective, these companies are notable because of their cost structure.
By using software to automate transactions and effectively matching supply with demand, they can deliver services at far lower costs than their offline counterparts. And because they often leverage existing infrastructure, they can scale much faster. That’s why an Uber black car costs the same as a yellow cab and you can get a gourmet meal from Munchery for the price of a burrito.
While taxi drivers and gourmet chefs might not have much in common, if you look at the industries where on-demand economy has taken root, it seems to do best in industries with:
- Fragmented Supply and Demand
- Non Standard Pricing and Levels of Service
- Large Overhead and Under Utilized Assets
If you’re looking for a business that checks all three boxes, it’s hard to beat manufacturing.
Is it fragmented? Incredibly so. There are over 270,000 factories in the US and more than 80% of those employ less than 20 people. Is it standard? Definitely not. Every order is custom quoted and service varies widely from order to order. Is there overhead? Absolutely. Equipment and tooling is expensive and factories have notoriously bad utilization.
What’s worse: The smaller the batch-size and the smaller the factory, the more painful all three factors become: making small-batch production the perfect target for an on-demand overhaul.
Why Small-Batch Production?
To appreciate why small-batch production is an attractive market, you need to understand it’s current cost-structure.
Unlike mass production where parts are made in the millions in a specialized factory or custom manufacturing where unique pieces are made one at a time, a good chunk of the world’s $13TR of products are made in batches. That is, in factories that make a range of different products for a number of different customers.
As a result each batch requires a significant amount of set-up — quoting, design check, tooling, scheduling, etc. — before any parts are made. During a normal set-up process, half a dozen people may be involved from account executives and support staff to skilled engineers and production managers that will bring a batch to the factory floor.
Because set-up is relatively fixed, it is wildly inefficient for factories to produce small-batches
Just look at how unit price plays out at different batch sizes.
Emerging Technologies
While this model has been dominant for the last hundred years, it‘s rooted in a number of analog assumptions: that overhead is fixed and that efficiencies scale linearly. However, a number of new technologies are making manufacturing more digital which could radically transform the way that factories run.
Web Based CAD/CAM
While Computer Aided Design (CAD) and Manufacturing (CAM) tools have been around for decades, they’re just beginning to come online. Most major browsers now support 3D file types and platforms like AWS are robust and cheap enough to support their heavy computational requirements. And as CAD/CAM moves from the world of desktop licenses into the browser, previously closed systems are becoming unbundled. A host of CAD APIs and Open-Source libraries are making it possible to automate and run several CAD operations at once, in the background of any application.
That has a number of implications for manufacturers who use CAD/ CAM software throughout the production and set-up process (design checks, pricing, tooling, ect.). By building CAD into the backend of applications, end-user can take on more of the set-up, eliminating the need for a factory front-office (account exec, sales, support) and automating a lot of the specialized labor needed to get a batch onto the floor.
Rapid Tooling (3D Printing)
Despite the hype around consumer machines, industrial 3D printers are where the real innovation is happening. From their humble beginnings in prototyping, even mid-market 3D printers are now capable of production quality tooling (e.g. molds) at a fraction of the cost and time of traditionally machined ones. Cutting down the most expensive part of the set-up process.
QR Codes / Mobile Scanning
While QR codes may have failed to find a consumer market, they’re potential for logistics is just starting to emerge. In concert with cheap mobile scanners, these systems make it easy to keep track of physical objects across multiple plants and beam that data to the web, where it can be and shared and analyzed, for each unit and every batch.
At the factory level, having real-time data brings transparency to the manufacturing process and can be useful in identifying bottlenecks. But at the system level, across a number of factories, you get a much broader picture of what’s going on; and can determine in an instant the best route for a particular piece to get made efficiently. Increasing the value of every operator and machine.
A New Model of Small-Batch Manufacturing
On there own, any of these technologies can create efficiencies, but together they have the potential to do much more. Just as smartphones, GPS and mobile payments laid the groundwork for Uber, these technologies are building a foundation the next generation of manufacturing startups.
Like their on-demand peers, these new manufacturing companies will benefit from a much lower cost structure. They’ll use software to automate once manual processes and aggregate demand (small-batches) so they can more efficiently match it to supply (factories). They’ll grow incredibly fast and will continue to get smarter and more efficient at scale.
But more importantly, they’ll create new possibilities for designers, businesses and brands to bring products to market in new ways. Without the tremendous cost of overhead, they’ll open up a new market for small-run designs and just in time products. And because manufacturing doesn’t live in isolation, this new model will have profound effects throughout the physical product world — for the people that make, sell and consume them.
In the next five years I believe manufacturing will be as simple, fast and affordable as calling an Uber or ordering a Munchery meal. And I for one, can’t wait!
Can’t wait either? Luckily, you don’t have to. At Matter.io we’re building the future of On-Demand manufacturing today…and we’re hiring!
