Developing On-Demand Services in Manufacturing
Consumers have grown accustomed to getting what they want, when they want it —services like Uber, Seamless, and Netflix are examples of how this on-demand business model can be successful. What if the on-demand model could be expanded to the manufacturing space?
Contract and toll manufacturing are prime examples of how the industry is ripe for the instant gratification marketplace. These two supply chain management strategies use the “sharing economy” model of on-demand services to help customers save time and money during product development.
Toll versus Contract Manufacturing
In toll manufacturing, a company provides a third party with raw materials to complete the manufacturing process for them. The toll manufacturer, equipped with the necessary production equipment and specialists, charges the company a fee (a toll) to finish the job.
Contract manufacturing is a similar process, except the contract manufacturer is responsible for sourcing raw materials in addition to making the product, meeting customer specifications, and adhering to delivery time requirements.
The Cost-Saving Benefits
OEMs and other industrial manufacturers can apply the on-demand service model to their businesses by taking advantage of toll and contract manufacturing.
By going to a third-party when they need specific services, companies avoid the investment required for additional equipment, facilities, and employees. In turn, they receive the services they need, when they need them, while saving time and money.
This on-demand service model is ideal for new product development, seasonal projects, and testing products by utilizing a variable-cost operation.
Contract and toll manufacturers allow companies more flexibility no matter what stage of production they are in. During product development, for example, companies can contract a manufacturer to begin production while still building their own facility.
They can also reach out to contract manufacturers for assistance producing high-quantity orders during overflow production or to help source and test materials during first-run production.
Sierra Coating operates as a toll and contract manufacturing organization (CMO) providing critical on-demand laminating services to our customers. To learn more about this model and the financial advantages of employing a contract or toll manufacturer, download a free copy of our eBook, “The Financial Case for Contract Manufacturing.”