The model of our grandparents is making its way into some sectors of consumption, but despite being more sustainable, it has some insurmountable conditioning factors
When it is manufactured on demand, a product begins to be produced when the customer’s order is already in place. Precisely for this reason, they are usually short productions or even give rise to unique products. According to Jordi Gavaldà Boladeres, an analyst at Iberdac Management, it is a model “typical of the market between companies (B2B), although it is gaining importance in consumer products.”
The advantages for the manufacturer are obvious: their production activity is covered by a firm order, so they do not have to finance a warehouse of products waiting for them to be sold. This improves the company’s cash flow -continues Gavalà-, in addition, it can build customer loyalty and be able to detect production problems more quickly in the factory, with the consequent saving of unusable processes or components.
From an environmental point of view, it can be said that it is more sustainable, since what the market needs is manufactured and stocks that are not sold are not generated, according to this analyst, who recalls that, in certain sectors, what is not sold may be outdated. “This means wasting the resources that have been spent on their manufacture (materials, energy, transportation),” he points out.
It’s for everyone?
But not all products can be made following this model. As determined by Oriol Montayá, professor of logistics at Pompeu Fabra University and its business school, in order to be able to manufacture on demand, several characteristics must be met: that they be products that have a high value, that they move little volume and that the time of delivery is reasonably short. A fourth could be added to these three: that there is a point of personalization or luxury in the elaboration of these products.
In his opinion, in sectors where margins are very tight and that work with very high volumes, it is difficult to manufacture on demand.
The key element would be the supply chain, which starts with the production of raw materials and then adds manufacturing and then distribution. All these links have to be coordinated, otherwise the problem will be transferred to the previous link’.
“If I am a distributor who sells only on demand, whoever is assuming the risk is the one you ask, which is the manufacturer,” he explains. But if it is the manufacturer that works on demand, “there are some raw materials that someone has started to produce and is waiting for them to be ordered,” he adds.
For this reason, this expert considers that there are several keys to achieving optimization and greater sustainability of the supply chain. On the one hand, the forecast. “Anticipating what is going to happen is what allows production, both of raw materials and products, to reach a reasonable level of efficiency, effectiveness and sustainability.” However, it is somewhat complicated, especially in the face of unforeseen events such as pandemics, armed conflicts or maritime collapses. Therefore, it is necessary to have a resilient supply chain.
How to be resilient?
In Montanya reviews, there are two types of solutions for these two problems. For demand forecasting, “a very important ally is technology, especially artificial intelligence”, which can better plan demand.
As far as the resilience of logistics processes is concerned (understood as the capacity you have to deal with an unforeseen event, to what extent does this interruption affect the chain and how long does it take to recover normality in the service), the factors that three will have a positive effect on it: proximity, collaboration between actors (instead of auctioning to the highest bidder) and customer orientation.
The Pompeu Fabra professor explains that, since the end of the 80s of the last century, supply chains have been built based on “misunderstood” efficiency, which implies that they are very long periods, relocating production and with levels of stocks and very low stocks.
“Even if the supply had to travel a long way, they opted to have very low stock levels, because it was not understood that this tension in the processes was possible. It was thought to be an efficient model, but it has been shown to cause very fragile supply chains” that also take a long time to recover.
A sustainability factor
This same expert predicts that sustainability, which was not taken into account before, is here to stay. “Sustainability is an element that, when you introduce it into the equation, does not have to be more expensive,” he says, assuring that by including resilience and sustainability in supply chains, different models come out, but no less economical . “The most expensive thing is the mantra used by those who do not want to move, but it is being shown that this is not the case,” he says.
Thus, for example, it ensures that if closer factories are installed, one can bet on a “more technological option that lowers the weight of unskilled labor and with which production can be equal to or more efficient than when it is 4,000 km».
Thus, sustainability and efficiency are not contradictory, but complementary to each other. “Before, the objective was to reduce costs, but what you have to be clear about is what you want to build and, from there, make good use of resources,” he concludes.
Eddie is an Australian news reporter with over 9 years in the industry and has published on Forbes and tech crunch.