Alibabas Xunxi Digital Factory can produce small-batch orders at reasonable costs and with shorter delivery times

Alibaba's Xunxi Digital Factory can produce small-batch orders at reasonable costs and with shorter delivery times

Micro-factories can help retailers win in the battle of mass customisation and also bring some fashion manufacturing closer to customers, says Roit Kathiala. Here he sets out their advantages in speed-to-market, flexibility and even cost-competitiveness.

Supplying consumers in the digital age is undergoing a transformation and it's not caused by tariffs, costs or trade tensions but by consumers themselves. Driven by digital and social media, shoppers are craving more and more choices in what they buy. What would previously have meant hours of working through various stores to find the product they want, now translates to a few clicks sitting in the comfort of their home and supported by AI-enabled solutions.

This trend is driving personalisation of products like never before – which for consumer goods focused supply chains like fashion has translated to an urgent need for rapid agility, and to make and move an increasingly large SKU count coupled with shrinking volumes per SKU. In addition, fast response to trends necessitates being able to instantly change design and production plans to react to a social media post by an influencer.

To facilitate this shift there are separate strategies for each aspect of the supply chain. This article touches upon a fast-growing concept – micro-factories – that is best positioned to address this manufacturing need and further enables bringing some fashion production back on-shore and located closer to customers in a cost competitive and sustainable way.

Micro-factories are smaller in scale, highly automated, and need fewer resources to set up and run compared to a traditional factory. They are more flexible to shift between different product types, can manage smaller quantities efficiently, and are less reliant on finding large numbers of workers. When located close to consumers, micro-factories also provide the speed and flexibility needed to meet fast shifts in demand.

Compared to traditional long line assembly factories, micro-factories carry inherent advantages like:

• A smaller footprint;
• Lower set-up cost;
• Lower overheads;
• Lower freight costs if located closer to market and, depending on the location, even lower import duty impacts.
• If configured well they can also be competitive at extremely low volume thresholds compared to traditional large assembly line factories, and perfectly suit products with shorter product life cycles with a high component of personalisation like fashion garments.

The factor that has hampered the return at scale of labour-intensive manufacturing back to the developed world – the US, UK and Europe – is comparative costs, and a micro-factory that is situated close to customers and has the ability to minimise the productivity loss caused by switching manufacturing lines from one product to the other can be the answer.

Minimising productivity loss is about managing the learning curve between production runs of different products when the factory switches from producing one product to another.

The learning curve in manufacturing is referred to as the rate of progress in a production line to get to optimum productivity. In simple terms, as the production line gets more experience of making a particular product or style, the per unit cost of production typically decreases as output per hour increases. When a production line shifts from one product to another there is a big drop in output as workers adapt to this new product, and then there is a gradual climb back to reach optimum productivity again. This gradual increase in productivity is called the learning curve.

Hence managing the learning curve in micro-factories is critical to their ability to produce personalised products competitively. Not managed well, this productivity loss will have to be built into the cost of the product, and that's what has made customisation increasingly expensive.

Copyright: ©Roit Kathiala

Learning curves in a big production run are not as consequential as they relate to a small period of low productivity at the start of a large production period. However, when we talk of a growing world of smaller production runs per product and micro-factories, managing this time becomes of crucial importance to keep costs low.

There are some strategies micro-factories can adopt to reduce this productivity loss in the learning curve:

  • Automation: Automating as many operations as possible reduces the duration of the learning curve. However, some time could still be needed for retooling machines between two production runs.
  • Standardising components: Across multiple products this can help reduce the learning curve in addition to creating procurement leverage.
  • Clustering similar products: Reduces the learning curve substantially when the production line switches from one product to another.
  • Multi-skilling operators: Expanding the operator skill-set to be able to carry out multiple operations efficiently is a key function to reduce the learning curve in micro-factories where there are far fewer operators compared to a traditional factory.
  • Data-driven configuration of operators/production lines: A fact-based data-driven allocation of operators to the appropriate stations in the production line, based on not just their core skill but also considering secondary skills, has been proven to be successful in reducing the learning curve.

With these strategies in place, micro-factories that are already easy to deploy, flex and operate could become as competitive as the traditional long assembly line factories – and may be even end up being cheaper overall for making short-run customised products.

Micro-factories are not just a consumer goods solution but are already increasing in popularity across different industries and have the potential to be scaled globally. A great example from the automotive industry is Arrival.

Arrival is a UK-based startup founded in 2015 that manufactures Generation 2 commercial electric vehicles that can compete on price with traditional fossil fuel vehicles. These products are assembled in micro-factories closer to customers and are profitable at low volume thresholds while offering customisation. Arrival and its micro-factory-based manufacturing model recently secured investments from Kia and Hyundai at a record valuation of EUR3bn (US$3.3bn) and UPS recently placed an order for 10,000 electric vans – a big validation of this micro-factory based model and the rapid pace of disruption all around us.

As customer preferences shift in a digitally influenced world, micro-factories with their advantages, including the ability to operate competitively in the markets where consumers live, can be a great supply option that brings efficiency to retail supply chains and helps bring a part of the lost fashion manufacturing back to the developed world.

About the author: Roit Kathiala has led sourcing and supply chain teams at leading retail companies in Europe, Asia and North America and advises companies on their product, supply chain, sustainability and digital strategies. Click here to read other articles he has written for just-style.