The manufacturing sector is booming, as the global contract manufacturing industry is projected to reach $2.7 trillion by 2023. While the sector has seen numerous developments over the past years, manufacturers have continued to follow the traditional manufacturer business model.
However, the emergence of e-commerce, along with the rise of new technologies, has encouraged manufacturers to adopt new business models.
Let’s talk about business model manufacturing and how it’s changing.
What Is a Manufacturer Business Model?
A manufacturer business model is a well-devised system that describes how a manufacturing organization will create, deliver, and capture value in economic, social, and cultural domains. In simpler terms, it’s how you, as a manufacturer, will go about your business, how you will generate revenue, and how you will ensure business survival.
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Understanding Manufacturing Business Models
An obvious distinction between manufacturing business models is whether you sell directly to customers (B2C) or to other companies (B2B) or to both customers and companies. Some manufacturers sell directly to end-customers, and this model is referred to as the direct-to-customer selling (D2C) model. Other manufacturers follow a more traditional approach by supplying their products to distributors, retailers, and other third-party organizations.
Every manufacturer business model comprises numerous supply chain levels. These levels need to be regularly analyzed to ensure optimal supply chain efficiency. Managing supply chains is all about creating a perfect balance along the supply-demand spectrum. One end of the spectrum has raw materials used to manufacture new products. The other end has finished products that’ll be supplied to the consumers.
A general supply chain consists of the following levels:
Different manufactures can have different supply chains based on their business models. Some manufacturers may have multiple suppliers, whereas others may have numerous levels of warehouses. You may sell directly to a customer instead of relying on a retailer. In that case, retailers, distributors, or other third-parties won’t be a part of your supply chain.
Some common business models for manufacturing are:
- Assemble to order
- Configure to order
- Engineer to order
- Make to order
- Make to stock
- Batch manufacturing
- Process manufacturing
- Discrete manufacturing
- Job shop
- Mixed mode
The supply chain you as a manufacturer will follow will depend on your manufacturer business model. ExoloreSCM delves deep into the supply chain and how to manage it more efficiently.
The Rise of Technology: Traditional vs. Electronic Business Models
E-commerce is booming. The global e-commerce market was valued at around $9.09 trillion in 2019. Traditional business models that work for physical retail don’t work for e-commerce. Moreover, certain models are native only to the electronic market and have no relevance in the physical world. Some common examples of business digitally-native business models are:
- Information-barter models
- Freeware models
- Digital delivery models
While e-commerce is the new face of retail, a manufacturer business model won’t be successful just because it’s electronic. However, considering the fact that e-commerce is likely to grow at a CAGR of 14.7% during 2020-2027, being technologically competent needs to be on the priority list of all manufacturers.
New Manufacturer Business Model Trends for Manufacturers
The manufacturing industry has remained serene for the past few years. While new trends in retail and supply chain have continued to emerge, retailers haven’t yet felt the need to entirely transform their business models.
However, the continuous growth of e-commerce, along with the rise of new technologies, have made it essential for manufacturers to be agile and implement changes to their existing models.
Let’s look at some business model trends manufacturers need to look out for in the upcoming years.
1. Direct-to-Customer (D2C) Selling
The concept of D2C selling has been out there for a while, but not many manufacturers have adopted that model. This is going to change, as more manufacturers are ditching third-parties to reach directly to their customers. Allbirds, Warby Parker, BarkBox, Casper, and Dollar Shave Club are some D2C manufacturer business model examples.
Data from Statista shows that D2C e-commerce sales in the US will reach $21.25 billion in 2021, up by almost three times from 6.85 billion in 2017. The D2C business model for manufacturing offers numerous benefits to manufacturers. For starters, it eliminates third parties, allowing you to get a larger share of profits and revenue. Secondly, it enables you to connect directly with your customers and form meaningful relationships.
2. Software Solutions and Business Intelligence
Manufacturing operations, which were once essentially manual and paper-based, are becoming digital. More manufacturers than ever have implemented digital manufacturing systems, which has propelled the global manufacturing operations management software market to reach $14.6 billion by 2025.
These digital solutions help manufacturers manage all their processes and tasks, such as overseeing production, tracking staff productivity, tracking sales, etc., all from one place.
3. Product as a Service
You must’ve heard of Software as a Service (SaaS), a business model that has redefined the cloud software solutions industry. The manufacturing industry has come up with a similar model – Product as a Service. The idea behind this manufacturer business model is to provide a product, such as an industrial machine, on rent to a consumer, along with the required remote support.
This model can be effective for manufacturers that produce expensive machinery and products that aren’t’ convenient to buy. Consumers who don’t want to make a hefty investment by purchasing the product can rent the machine, use them for as many days as they like, and pay the provider accordingly.
4. Internet of Things (IoT)
The Internet of Things (IoT) and IoT-based services are revolutionizing the manufacturing sector in many ways. The implementation of IoT devices such as cameras, heat sensors, etc., allows plant managers to keep an eye on all manufacturing operations. Another major application of IoT is robotics. Manufacturers worldwide are using robots to reduce human workload, alleviate costs, and get work done quickly.
As a manufacturer, you need to stay on top of industry trends and keep up with the new developments. The growth of e-commerce has led to the rise of numerous electronic manufacturing business models, and manufacturers need to adapt accordingly.