3 reasons to pivot from offshore mass production to onshore made-to-order.
The era of reliable global mass production has provided brands with seemingly limitless scalability. But has the global pandemic brought that era to end?
As the global supply chain all but fell apart, many brands began to ask (or revisited) vital questions about the real costs of offshore mass production.
Clearly, reaching the lowest possible unit cost doesn’t tell the whole story. It’s like attractive packaging obscuring what’s inside: policies and processes that drive all kinds of hidden costs.
Let’s take a closer look, question traditional thinking about mass production, and consider new technology-driven opportunities to get more efficient while increasing market share.
Let’s open our eyes to the new era of modern, high-tech, domestic made-to-order production.
The hidden costs of offshore mass production.
Any manufacturing operation investment will incur soft and hard costs.
Soft costs of offshore manufacturing are difficult to quantify. These are the risks and limitations of over-reliance on overseas mass production.
Primarily, the issue is a lack of agility, or opportunity cost. Even in the best of times, brands have to plan months ahead to place large-batch production orders. They make educated guesses on what products and styles will be successful the following season.
This model leaves brands unable to respond rapidly to changes in consumer behavior. In an era of trends emerging as quickly as a TikTok video can go viral, brands that heavily rely on overseas partners are forever just behind the curve in terms of turnaround time.
Add supply chain disruptions to the mix, and the “hidden” cost of geographical distance becomes plain to see.
Hard costs of offshore manufacturing are more readily calculable, though just as easily obscured by the traditional focus on unit cost.
Some of these costs can seem relatively insignificant when you examine them one at a time, but they add up. For example:
• Cost of inventory
• Quality control processes
• Cost of returns
They’re enough to give you pause before assuming that your best strategy for your next production line is to set it up with the same overseas partners.
Once factored into the overall economics of scale, ongoing costs like wasteful overproduction can eat deeply into the cost savings gained by low unit cost. Related product quality issues can keep your rate of returns unnecessarily elevated.
These are some of the reasons why onshore made-to-order production is growing in popularity.
3 benefits of onshore made-to-order.
Brands that take a closer look into the “black box” of global mass production, beyond unit cost, may discover tremendous, cost-effective benefits to onshore made-to-order models.
1. Adaptability over volume.
In global mass production, the primary focus is on the consistent reproduction of a standard product. You establish an acceptable level of quality, then repeat the pattern at a high volume.
In domestic made-to-order production, the focus is on adaptable production. In addition to establishing an acceptable level of quality, increased capacity for agility is built into the process. And it’s more feasible to leverage that agility with shorter supply lines.
Now, what is the effect of adaptability on cost compared with standard production?
That depends. A made-to-order model is “right-sized” production. With a real end user behind every unit produced instead of a forecast, you can dramatically cut the cost of overproduction.
How you go about this makes all the difference.
If you add a bunch of manual processes, like reading change orders, locating parts, and switching them out, that can easily send your production costs soaring. It wouldn’t be cost-effective. You’d quickly go back to standard mass production, counting overproduction as a necessary cost of doing business.
But if the production line is properly set up for automated adaptability, in which the translation of order information into product construction is computerized, those costs are contained. Right-sized production becomes profitable.
2. Lower total cost over per-unit cost.
Brands that are vertically integrated with their manufacturing operations will naturally want to know more about what a pivot to made-to-order would mean for day-to-day operations.
What are the true costs and benefits of being able to quickly scale up a standard product and deliver it to the market vs. a one-at-a-time approach that seems like it would be slower and less productive?
At the heart of the question is speed, which is a key variable in the economics of high volume, low product mix production (mass production) versus high mix, low volume production (made-to-order).
• High volume, low product mix (HVLM) gives you one product in large batches, positioning you to quickly produce in anticipation of market trends.
• High mix, low volume (HMLV) gives you multiple variations on a product, in multiple small batches, positioning you to quickly respond to changes in the market.
Clearly, both have their benefits. What’s less clear are the actual costs and benefits to each until you start to break them down and look at the moving parts.
Consider how the actual costs of high-speed, high-volume mass production can be challenging to see until you take a closer look.
For many brands, it seems simpler to demonstrate the cost-effectiveness of large-batch production than small-batch. In theory, all it takes to speed up HVLM production is improved equipment. The construction method (for, say, a sneaker) is the same, you just repeat it faster.
But that’s assuming that the cost of ramping up standard production is limited to initial investments: machinery, training personnel, set wages, and other upfront line items.
It’s rarely that simple. Faster and less expensive on paper often translates into increased total cost. Here are just a couple of examples.
Example 1: When quality issues negate the benefits of high-speed, low-cost production.
Many companies chose to move operations to countries with lower labor costs like China in the 1990s and 2000s. Lower wages were the primary factor in reducing the per-unit cost when quickly ramping up production for new product launches.
But in many cases, quality was sacrificed for quantity. This translated into an unanticipated increased total cost of ownership (TCO) of product lines. As Quality Magazine reported in 2018, this was a significant factor in driving the movement toward reshoring manufacturing.
“Companies too often accept lower product and service quality to save on cost … Real-world companies using the TCO Estimator estimated their offshore direct quality cost as about 2.5% of purchase price, ranking quality the tenth highest of thirty TCO cost factors analyzed.”
Your tenth highest cost isn’t among the primary factors driving operational decision-making, but a margin of 2.5 percent is no less significant.
Example 2: When speed itself incurs an additional cost.
Seco Tools has illustrated this point with a theoretical scenario:
• A machine shop (read: vertically-aligned factory) increases cutting speed by 10 percent, which in turn cuts the cost of labor to run the machine.
• However, the unintended consequence is that the increased wear cuts tool life in half.
•As a result, the shop incurs a 46 percent increase in actual cost.
Regardless of what type of manufacturing operation you’re running, the point here is that the hidden costs of scaling up mass production can significantly offset the anticipated benefits.
Likewise, the benefits of automated made-to-order production may be challenging to see until you take a closer look.
On the flip side of that coin, the benefits of made-to-order can offset anticipated costs in ways that defy a simple apples-to-apples comparison.
What upsets the traditional cost-benefit analysis are modern technologies – hardware and software – that are built to pivot to meet the needs of rapidly changing market demands.
Or even the potential to meet individual consumer demands.
That brings us to benefit #3.
3. New opportunities to increase market share.
What we’re doing here is challenging the assumption brands have made since the Industrial Revolution: making things in large batches is the most efficient way to manufacture everything. The bigger the batch, the better.
But 21st-century thinking and technologies are flipping the paradigm.
Could domestic made-to-order production be more profitable – even potentially more efficient – than overseas mass production in the modern era?
Made-to-order production creates opportunities to deliver products in personalized ways at scale that weren’t remotely possible when, say, the first Model T came off of Ford Motor’s line.
If Ford Motor kicked off the era of modern mass production, Toyota arguably set the new era of increasingly made-to-order production in motion. The company’s success has been driven by its early investment in waste-reducing, demand-driven production.
Toyota has proven that it can partner with onshore suppliers to facilitate a “just-in-time” approach to inventory management and keep pace with market demands for a wide variety of models and features, both standard and optional.
Automation technology now makes it possible for brands to take market responsiveness to a whole new level – from markets to the individual consumer. The idea of repeated single-batch, wasteless production, each piece with its own variations, performed at a cost, speed, and scale comparable with mass production, is a reality.
Brands investing in customization technologies and in shorter, more diversified, onshore supply chains are positioning themselves to embrace this made-to-order revolution.
And it won’t be led by automakers alone. Fashion, apparel, footwear, and other lifestyle brands like the ones we work with are poised to pave the way forward.
Automation tools like SilhouetteTM from JTB Custom make it possible.
We work with brand leaders like you who have caught sight of this emerging reality, in many cases taken tentative steps, but need help getting the resources in place to move forward.
JTB Custom can help in many ways. One simple way to think of what we offer is in terms of tech and time.
• Tech. Our customization automation software, Silhouette, is an all-in-one solution that works with your ecommerce platform, internal manufacturing processes, and order fulfillment software to seamlessly handle every step of custom order intake, production, and fulfillment.
• Time. We take the time to consult with you on all things custom, including customization program first steps, production line setup, training staff, sourcing vendors, and even managing the outsourcing of your production line if desired.
We’ll help you take the next step toward launching or scaling up your product customization program – an exciting step into the future of efficient, personalized, made-to-order production.
If you’re talking customization, have your next conversation with us. Talk to an expert today.