Customization: A reality under the fourth industrial revolution?

Transcription

1 E-commerce. Business Models. Innovations Management Theories and Business Models Winnie Lo Business Innovation in China (Part 3): Customization: A reality under the fourth industrial revolution? January 2017

2 Key Takeaways Customized goods are always welcomed by shoppers. However, it is costly to offer customized goods in the B2C business environment. The optimal solution for customization maybe adopting the C2B business model with the aid of new technology In the fourth industrial revolution, smart factory with the aid of new technology, big data analytics and supply chain digitalization is a crucial setup for running customization business Different levels of customer engagement of C2B businesses are observed. Five models are identified: R&D, bespoke, modular, made to order and group buying The winning market players in customization should be equipped with: Data The capability of engaging customers Effective channel management Sustainable smart factory Agile supply chain management 2

3 This report The role of the 4 th industrial revolution in the C2B model Different levels of customer engagement in C2B cases Is the traditional supply chain ready for the C2B model? 3

4 The world is marching to the fourth industrial revolution Industrial revolution The Fourth industrial revolution is building on the Third, the digital revolution that has been occurring since the middle of the last century. It is characterized by a fusion of technologies that is blurring the lines between the physical, digital, and biological spheres. ~ World Economic Forum (2016) Industrial Revolution 1.0 Industrial Revolution 2.0 Industrial Revolution 3.0 Industrial Revolution 4.0 Steam power, mechanization Mass production, electrification Information technology and automation Big data analytics, digital supply chain and smart factory Late 18 th Century Early 20 th Century 1970 s Today Four major effects of the fourth industrial revolution on business: Higher customer expectations Product enhancement Collaborative innovation Reinventing organization Source: World Economic Forum, compiled by Fung Business Intelligence 4

5 Data matters to business decision in the fourth industrial revolution Industrial revolution Data inputs Operational data Market data Personal data Consumption data Order fulfillment Raw material supply Equipment status Process status Manufacturing innovation Industrial standards Regulatory requirements Technological frontier Real name system User s basic information User s behaviour User s preference Consumption record Online transaction Online payment Membership points Internal data Contracts Inventory management Operational data Human resources Finance External data Supplier management Quality assurance Market intelligence Customer database Smart device Internet of things 3D printing Robots Automation Artificial intelligence Manufacturer Forecasting Visibility Process optimization Customization Cost & risk minimization Zero inventory & flexible replenishment Shorter lead time Business outputs Retailer Market demography Market behaviour User s purchasing power User s concerns/ values Reach the targeted market Higher turnover rate Higher profit Increase customer stickiness Social media Subscription Like/ share Follower s feed Browsing history Sources of traffic Official e-store/ APP Search engine Location based marketing Web advertisement Social media Smart device Mobile Car Home Electronic appliance Source: Fung Business Intelligence 5

6 Shoppers always prefer customized goods, especially for the new shoppers, who grow up in the Internet era and embrace individualism Industrial revolution Value diversity Tech/ web savvy Treasure experience Product quality-oriented Convenience Mobile first Shop anytime, anywhere Grow up in the Internet era Individualistic Peer reviews Source: Fung Business Intelligence 6

7 Future: C2B model Now: B2C model However, it is costly to offer customized goods in the B2C business environment. The optimal solution for customization maybe adopting the C2B model with the aid of new technology 2 1 Supply driven Not really fulfill the needs of customers Difficult to collect feedbacks from customers Industrial revolution Suppliers Customers Customers simply shop for the products available at the brick-and-mortar stores. They seldom directly convey their requirements to the suppliers, because of expensive transaction cost On the other hand, suppliers are difficult to produce customized goods, as most of the traditional supply chains are not fit for customization process Source: Fung Business Intelligence Suppliers 1 Demand driven Customers proactively convey their views, ideas, and even product solutions to the suppliers 2 Production based on the needs of customers Customers Customers can express their thoughts to the suppliers simply by one click via the Internet. They can even participate in the process at the product development stage and co-create ideas, product concepts and solutions with suppliers Now with advanced technology and big data, some innovative suppliers start to offer some customized products with smaller order, lower cost and shorter lead time 7

8 In the fourth industrial revolution, smart factory with the aid of new technology, big data analytics and supply chain digitalization is a crucial setup for running customization business Corporate clients Industrial revolution Raw material supplier Modularization of raw materials Standardization of parts Smart factory Mass customization Customization for small orders Individual customers Customization for small orders Bespoke Intelligence Artificial intelligence Robot Automation Internet of Things RFID Sensor (Traceable, real time interactive) 3D printing Wearable technology Sustainable production (clean energy) Digitalization Cloud storage & cloud computing Big data analytics Real time process tracking (visibility) Source: Fung Business Intelligence 8

9 Why a smart factory is important to customization? Industrial revolution Supply chain visibility Big data Internet of things Digitalize the production process facilitating process tracking Seamless connection between factories, management and clients Quick responses to market Risk control Standardized process Automation Using robotics manufacturing Optimize labour force Rapid prototyping 3D printing Digital design platform Use of new materials Shorten design process Able to offer customized designs for various clients Source: Fung Business Intelligence 9

10 This report The role of the 4 th industrial revolution in the C2B model Different levels of customer engagement in C2B cases Is the traditional supply chain ready for the C2B model? 10

11 Low High Level of customer engagement Different customization models involve various levels of customer engagement C2B C2M (Customer to manufacturer) Case 1.Research & development Manufacturer Consumer Haier 2.Bespoke Manufacturer Consumer Red Collar C2B (Customer to business) 3.Modular customization Manufacturer Brand Consumer NIKEiD 4.Made-to-order Manufacturer New intermediaries Consumer Biyao.com 5. Group buying Manufacturer New intermediaries Consumer Pre-sale activities Web celebrity Source: Fung Business Intelligence 11

12 Level 1 ihaier.com: Engaging customers in the stage of R&D ihaier.com is Haier s innovative incubator platform Customers can propose their ideal products to Haier with design details Upon their proposal being accepted by ihaier, the customer would be funded by Haier and make the goods together with Haier s inhouse designers and production teams In March 2015, Haier produced the first customer-designed air conditioner Status of the proposal Concept Developing On shelf Making profit Source: ihaier.com, compiled by Fung Business Intelligence 12

13 Level 1 Haier: Smart factories make the customers design and idea a reality Digitalized process flow and automation in smart factories improve the flexibility and productivity of Haier s production lines. And this allows Haier to provide customized products to the market Shenyang refrigerator factory Haier s factory in Shenyang as a case in point Smart factory (now) vs. traditional factory (past) Staff 57% Productivity of a production line 80% Production cycle to 7 days Jiaozhou air conditioner factory Zhengzhou air conditioner factory Qingdao boiler factory Foshan washing machine factory Haier s smart factories Source: Internet, compiled by Fung Business Intelligence 13

14 Level 2 Red Collar: Bespoke model Qingdao Red Collar (QRC), established in 1995, was a traditional garment OEM for overseas brands. Since 2003, QRC has collaborated with a number of US firms and developed its customized tailoring business. In 2015, QRC has further transformed its business and adopted bespoke model How does the bespoke model work? Order placement A shopper can place order via QRC s Magic Factory App On-site measurement* Upon received measurement request from App user, QRC s staff will go to the designated location by transformed bus and provide measurement service to the user on the bus 3D measurement The bus is equipped with 3D scanning devices, which can collect 22 types of body measurement data in seconds Exclusive tailoring The shopper can select the type of fabric, design, colours and even embroidery logo via the QRC s App. The customized information and 3D scanning data will be converted into an "identity card for the particular bespoke item, which would be sent to the QRC s production line *QRC s on-site measurement service is available at 16 cities, including Beijing, Shanghai, Tianjin and Shenzhen Picture source: Internet Source: Internet, compiled by Fung Business Intelligence 14

15 Level 2 Red Collar: Smart factories guarantee a reasonable price, high product quality and short lead time for the bespoke model Individual ID for each bespoke item Customized options QRC s smart factories Pattern making 製版裁剪縫製刺繡熨燙包裝 Cutting Sewing Embroidery Ironing Packaging Shipping 7-10 working days 3D body measurement data Models QRC s bespoke model Traditional tailoring Mass production Customization Yes Yes Not available Price Medium Highest Lowest Product inventory 0 0 High Body measurement 3D scanning device Tailor measurement Not available How to order Via mobile app On-site Store & online (if applicable) Product tracking Via QRC database Rely on the tailor Not applicable Picture source: Internet Source: Internet, compiled by Fung Business Intelligence 15

16 Level 3 NIKEiD: Modular model allows customization with options Shoppers can customize their Nike shoes by selecting the following options: Laces Insole Colour Vamp NIKEiD Outsole Recommended options Swoosh Embroidery Delivery lead time from Vietnam factory to China market is 30 days Made in Vietnam Lead time 30 days Deliver to China Picture source: NIKEiD Source: Internet, compiled by Fung Business Intelligence 16

17 Level 4 Biyao: Made-to-order model In 2014, Biyao.com platform was found. Half year later, monthly orders of the platform grew from 2,000 to 300,000 The platform connects consumers to manufacturers, bypassing all the intermediaries and keeping zero inventory. The manufacturers are the world class OEMs, equipped with agile supply chain. Biyao.com offers customized service to the online shoppers, who can select from several options. Upon receiving the order, the corresponding manufacturer will produce the customized goods with a lead time around 20 days Burberry quality 166 Essilor quality 259 Armani quality CK quality 169 Samsonite quality 169 Picture source: biyao.com Source: Internet, compiled by Fung Business Intelligence 17

18 Level 4 Biyao: Made-to-order model The new intermediary model targets for building a win-win situation for both online shoppers and the OEM Online shoppers can enjoy a significantly lower price for a product with a quality similar to branded goods The OEM can earn more by selling the customized goods via Biyao, instead of selling to the brands The OEM 1. Sell to brand 2. Sell via Biyao Cost of production 270 OEM sells the product to brand companies The brand pays for 300 OEM s net profit: 30 VS If the unit price is increased to 399 selling via the Biyao platform, minus a 7% operational charge by Biyao, OEM s net profit: 100 * According to Biyao platform, the retail price recommended by the OEM should not be higher than two times of the production cost Profit Margins of the OEM: 10% Profit Margins of the OEM: ~25% Source: Internet, compiled by Fung Business Intelligence 18

19 Level 5 Group buying model* a. Singles Day pre-sale activities in 2016 How does it work? Sep Oct Nov Sellers who want to participate in the Singles day pre-sale have to register with Alibaba during September Since 21 October, consumers preview the offerings of the sellers and select products or services. In some cases, limited customization is available. Before 11.11, consumers pay a deposit. Products are offered in a discounted price lower than normal price. Merchants collect pre-orders from consumers to organize production. Consumers pay the balance to the sellers on the actual sales day. And they would enjoy priority in receiving the products. * In this report, definition of the group buying model is through accumulating customers order, suppliers produce the goods based on the actual number of orders Source: Internet, compiled by Fung Business Intelligence For detail of the pre-sale model, view also Countdown to Alibaba s Global Shopping Festival (Oct 2016) 19

20 Level 5 Group buying model b. Selling goods through web celebrity is a fast path for testing the water Product concept The web celebrity wears the sample dress and posts feeds to social media platform. No product inventory is needed * Followers vote for the feeds Based on the followers reception, the web celebrity produces the goods through her supply chain This feed was posted by a web celebrity* in China. Within 1 day, around 1.7 million followers view the post and almost 1,800 viewers like it. Products ready for order in Taobao store Deliver to shoppers Duration: 1-2 Weeks *The second largest Taobao store and the largest web celebrity store in 2015 (In terms of sale value in lady fashion sector on Taobao platform) Source: Taobao, retrieved on 9 th May, 2016, compiled by Fung Business Intelligence For detail of the development of web celebrity economy in China, view also Cewebrity Economy in China (2016) Series One and Two 20

21 Advantages of the C2B model C2B Have a better shopping experience Enjoy customized goods with lower prices Receive faster response from the businesses as the latter sell directly to them Source: Fung Business Intelligence Consumer Seller Collect consumer preferences and requirements in advance, which help to ease the pressures of production, inventory management, finance and logistics Achieve a higher product turnover, zero inventory and lower production risk Enhance the stickiness of customers by building direct relationship with the customers 21

22 Critical success factors for running a sustainable C2B business model C2B Data, data, data Engage the customers & closely interact with them Seamlessly manage multi-channels Flexible manufacturing capabilities Leverage the capabilities of supply chain partners in terms of design, sourcing, distribution, logistics, etc. Source: Fung Business Intelligence 22

23 This report The role of the 4 th industrial revolution in the C2B model Different levels of customer engagement in C2B cases Is the traditional supply chain ready for the C2B model? 23

24 Traditional supply chains are not ready for C2B model Supply chain 6 common pain points facing the traditional operators Low visibility Slow response to the market Lack of risk control Traditional supply chains Lack of talents Unable to tap into global market Difficult to maintain a low operating cost Source: Fung Business Intelligence 24

25 To survive in the C2B era, the traditional supply chain should be more agile Supply chain Capable for meeting small orders and customized production Real-time tracking and tracing Quick responses to customers requirement Features of the C2B s agile supply chain Risk control: Seamless data reporting and feedbacks to management Flexible adjustment in production Demand-driven Achievement Offer customized products and solutions with short lead time Quick responses to global demand Effective cost and risk control Backed by big data analytics, RFID sensor, artificial intelligence, robot, automation, etc. Source: Fung Business Intelligence 25

26 Business innovation in China Previous reports Part 1: Embracing new opportunities by adopting O2O strategies & building business ecosystem Part 2: Internet-enabled borderless trade This report Part 3: Customization: A reality under the fourth industrial revolution? Forthcoming Part 4: Sharing economy: A disruption to the traditional market 26

27 Contact Management Theories and Business Models Winnie Lo Senior Research Manager Tel: (852) Fung Business Intelligence 10/F, LiFung Tower, 888 Cheung Sha Wan Road, Kowloon, Hong Kong Tel: (852) Fax: (852) Copyright 2017 Fung Business Intelligence. All rights reserved. Though the Fung Business Intelligence endeavours to have information presented in this document as accurate and updated as possible, it accepts no responsibility for any error, omission or misrepresentation. Fung Business Intelligence and/or its associates accept no responsibility for any direct, indirect or consequential loss that may arise from the use of information contained in this document. 27