- An on-demand approach gives retailers the freedom to sell more SKUs without committing to mass production.
- Now retailers can get the best of both worlds through hybrid manufacturing, economically and environmentally sustainable solution.
- The ease and efficiency of on-demand combined with the cost-effectiveness of traditional manufacturing is the future of sustainable retail.
By Dale Manning
In the retail business, one of your worst nightmares is being stuck with unsold inventory taking up space in your warehouse. Wasted stock can be a huge cost to your bottom line and pose serious risks to your business.
For eco-conscious brands, unsold inventory is also detrimental to the environment, especially if the products are textile-based. Some 20 billion items of clothing produced each year, become unsold leftovers and are usually buried, shredded, or incinerated.
Businesses that end up in an overstock situation generally use traditional bulk manufacturing which requires products to be made and then warehoused until they are shipped. While there is a risk of costly unsold inventory, bulk production can also be economically effective if a product is proven to be a best-seller.
On-Demand
On the opposite side of the spectrum sits on-demand manufacturing — a process by which goods are produced only when needed, and in the quantities required. This eliminates the cost and effort of storing and managing inventory. Because on-demand products are not produced at economies of scale, businesses can easily and quickly test the market with new products and designs.
Previously, businesses had to choose one method or the other. Now retailers can get the best of both worlds through hybrid manufacturing, economically and environmentally sustainable solution. This hybrid approach blends the cost-effectiveness of bulk production with the risk-free per-order fulfillment process of on-demand manufacturing.
How Hybrid Manufacturing Works
Before adding any new item to product lines, experts recommend testing them through on-demand manufacturing to ensure viability. An on-demand approach gives retailers the freedom to sell more SKUs without committing to mass production. Once retailers know a product has the potential to produce in quantity, the switch can be made. If interest in a product wanes, retailers can adapt by going back to an on-demand approach.
Having spent a career in sports, music, and entertainment, I am well versed in fulfilling merchandise orders for thousands of sports teams and artists. Before getting stuck with a warehouse full of merchandise, my team would run every new product through the on-demand cycle. Most of the brands we worked with fulfilled 25-60% of their orders through on-demand and the rest with mass production. It is important to find the right mix of on-demand products and bulk inventory to optimize sales.
Why Utilize a Hybrid Manufacturing Approach
1. Adapt to trends quickly without risk.
Culture is now manufactured on-demand. In the past, consumer trends were generally set by businesses. In the recent decade, the tables have turned, and consumers are setting trends on social media. Because buyers are changing, it is affecting how brands manufacture products. With a hybrid approach, brands can quickly mock-up a design and add the product to their online store without prepaying for costly order minimums and overhead by first using on-demand manufacturing. If the product does not fly off the shelf, then you simply remove it from your store and do not have to worry about piles of unsold stock. If it proves to be successful, then you would switch the production process to bulk manufacturing.
2. Improve cash flow.
When a business utilizes a blend of on-demand and bulk manufacturing for its products, it can more easily optimize its cash flow. For bulk products, they can get a higher per product profit margin due to economies of scale. For on-demand products, they don’t have to pay for costly inventory or order minimums. This frees up a business’s cash flow. The added liquidity allows brands to boost revenue-driving activities such as marketing, which in-turn increase sales, and ultimately grows their business.
3. Shift toward sustainability.
Being eco-conscious is no longer a consumer marketing trend. It is a real practice many businesses are implementing in their business model. Because on-demand manufacturing allows companies to produce only what consumers order, it eliminates unnecessary production and harmful waste, thus saving both the business’s bottom line and the environment.
4. Be better prepared for economic disruptions.
When supply chains were disrupted across all industries last year, many retailers were forced to shut down and were left with warehouses of unsold inventory. When utilizing a hybrid approach, it is important to look for a provider that manages a distributed supply chain. This type of fulfillment process allows on-demand manufacturing gives providers the ability to carry a large number of product SKUs in more than one facility. Therefore, orders of that product are able to be fulfilled in multiple locations. This means if one location closes or has an external disruption — they can seamlessly move order fulfillment to another facility.
It has never been easier to embrace hybrid manufacturing. Many retailers can use traditional manufacturing for bulk products that always sell, hand-in-hand with on-demand for short-term runs and trending designs. Because on-demand doesn’t require large startup capital, it is a low-risk method that can lead to high returns. The ease and efficiency of on-demand combined with the cost-effectiveness of traditional manufacturing is the future of sustainable retail.
Dale Manning is Head of Market Expansion for Gooten, a print-on-demand solution for brands world-wide.