Toolots Inc., a cross-border company headquartered in the greater LA area, is building an M2U (Manufacturer-2-Users) business model, which is a vertical platform that connects manufacturers directly to end-users to sell and service industrial equipment.
M2U was created primarily to solve the problem of heavy intermediation faced by manufacturers, but we believe it will also be a right kind of model to help achieve mass customization in manufacturing, as a core act of the Industry 4.0 theme.
This article provides an analysis on the Toolots M2U business model to explain why it is the case.
From Custom Production to Mass Production to Mass Customization
The background of mass customization is mass production by contrast, and a review of the essence of mass production is helpful.
First, let's define the word "manufacturing" to broadly mean "the process of making a product." One should note that although historically the word "manufacturing" predated mass production, in modern times "manufacturing" is almost exclusively associated, albeit implicitly by connotation, with mass production. In this article, however, we would like to free that word from such narrow connotation.
Second, let's think about the concept of "customization." Customization is a trendy topic today, not only in manufacturing, but in many other fields including education which is currently undergoing a profound revolution of "personalized education" or "adaptive learning."
But customization is not new. In fact, customization is very old.
In human history, manufacturing started with customization, i.e. making of a product according to the customized need. This does not mean in a strict sense that every product was made for a particular individual, but overall, the early manufacturing was essentially for customized needs.
This lasted until 18th-century, when "mass production" started to appear.
Mass production means manufacturing goods in large quantities by standardizing parts, techniques and machinery. This concept and process started to appear in 18th century, but was not fully utilized and refined until it was refined by Henry Ford in 1913 when he introduced the assembly line. Mass production quickly became the dominant form of manufacturing around the world. Today, mass production is a system of manufacturing based on principles such as the use of interchangeable parts, large-scale production, and the high-volume assembly line. It is no exaggeration that the modern civilization is built upon mass production.
The Four Essential Advantages Mass Production has over Old Custom Production
To understand the evolution from mass production to mass customization, it is helpful to first have a clear understanding the essential advantages of mass production over old custom production. Most people intuitively understand such advantages. But a conceptualized perspective is a good way to look into the next evolution.
Mass production has four huge advantages over traditional customized manufacturing.
First, efficiency. Mass production makes products at the lowest possible prices. Efficiency is the hallmark of mass production.
Second, reliability. Mass production tends to make products with higher quality and better reliability. This is an inherent result of standardization which is the core of mass production.
Third, serviceability. Mass-produced goods are easier to maintain and repair. This is also a result of standardization.
Forth, scalability. Mass production is far easier to scale up than old custom production. This is also mostly a result of standardization.
So Why is "Customization" Rising (Again)?
We must remember that mass production isn't a purpose in itself but only a result of pragmatism.
In a hypothetical ideal society that would make every individual uniquely happy, everything should be made with customization. The only reason why our societies have given up on custom-made products for mass-produced ones was because of the the practical advantages (see above) that mass production has over custom production.
A more interesting (and also more valuable) question is therefore not the subjective motivation for customization, but what objective drivers are making such a rise possible.
That the consumers are becoming more affluent and can afford higher prices for customized goods is part of the reason why customization is becoming more popular, but definitely not the dominating reason.
The fundamental reason that customization is having its own renaissance is because the new technologies and new business models are enabling "mass customization" which can make customized goods without sacrificing too much of efficiency, reliability, serviceability, and scalability.
That is, it is not the customization per se, but "mass customization" that we are experiencing, and such mass customization does not happen spontaneously, but instead must but driven and enabled by the right kind of technologies and business models.
What is Mass Customization?
Mass customization in the context manufacturing is the process of making general-market goods which are customized or modified to satisfy a specific customer's need.
With the proper enabling technology and implementation, mass customization can combine the flexibility and personalization of custom-made products with the low unit costs associated with mass production.
Often, phrases like "made-to-order" or "built-to-order" are used as equivalent substitutes for "mass customization" but we would like to advocate a distinction, because we believe "made-to-order" or "built-to-order" should be reserved to have a broader meaning which includes such custom-making that doesn't necessarily satisfy the requirements of "mass customization."
The key is in the apparent contradiction between "mass" and "customization."
And the key that resolves or reconciles such contradiction is the right kind of enabling technologies and business models.
The “Spiral Rising Cycle" Enabled by Technology and Business Model
On a more philosophical basis, we perceive that, in a very profound manner, the social and economic systems of human society have been undergoing “spiral rising cycles" enabled by technologies and business models.
A spiral rising cycle is a multi-dimensional process in which the state of the affair goes up in one dimension, but circles around and returns to the origin in another dimension. That is, it goes up not in a straight line, but in a spiral fashion.
Such “spiral rising cycles" are manifested in many similar are related areas.
In manufacturing, the cycle is "custom production > mass production > mass custom production".
In education, the cycle is "individualized education > mass education > mass individualized education".
None of the concepts involved here is novel alone in itself, but each step in the cycle nevertheless represents a revolutionary progress when it has been actually materialized. It takes the right kind of technology and business model to enable such a spiral rising cycle.
Mass customization isn't merely a light idea or motivation, but a heavy-weight progress that has to be lifted and enabled.
To enable mass customization, the technology and the business model must allow a customer to design certain features of a product and the manufacturer to make such features of the product while still keeping the four characteristics identified above closer to that of mass production.
The four characteristics are, to repeat, efficiency, reliability, serviceability, and scalability.
Mass customization is a core component of the so-called Industry 4.0.
Industry 4.0 is a confusing term because there is no standard definition to this concept. The term refers to a new phase in the Industrial Revolution. Among the popular definitions, you usually don't find "mass customization" in them. Instead, you find the emphasis on technological features such as these:
- human-machine interfaces,
- digital-to-physical transfer,
- machine learning,
- big data,
- advanced analytics,
- real-time data,
- IoT, or IIot.
Altogether, it can be simply referred to as "smart manufacturing."
All these technological elements are important for the Industry 4.0 revolution. Together they are already creating a new manufacturing ecosystem in which hundreds of thousands enterprises will thrive, some existing ones, and many new ones.
At the same time, we believe Industry 4.0 is enabled not only by the right kind of technologies, but will also need to be enabled by the right kind of a business model.
M2U is a vertical platform that connects manufacturers directly to end-users. This model is being advocated and developed by Toolots Inc., a company headquartered in Cerritos (the greater LA area), California.
M2U was created primarily to solve the problem of heavy intermediation faced by manufacturers which as a result are stuck in the lower end of value chain. Large barriers between manufacturers and end-users are the fundamental cause of the problems in manufacturing such as:
- high prices
- slow innovation
- inhibited customization
It should be pointed out that market intermediaries such as exporters, importers, distributors, retailers and OEM branders are of course not themselves the problem; They're just poor solutions to a real problem.
On the other hand, although simplistic single channel direct-selling model can theoretically lower the price, it suffers inability to scale, divided marketing power, thin technology, lack of integration, and low market penetration, and therefore does not offer a competitive alternative to the existing distribution and retailing model.
Ironically, the divisiveness of single channel direct-selling model does not lead to a higher level of customization. This is because such a model does not lend itself to mass customization, which is what really is the future.
Toolots builds a full system of branding, marketing, services and merchant corporate solutions that function as “roads”and“vehicles” to directly connect the manufacturers and the end-Users.
But unlike an e-commerce retailer or marketplace, and a traditional distributor, retailer or OEM brander, the M2U system built by Toolots is shared by the manufacturers, and allows the manufacturers to do fully branded and serviced direct-selling of their products without having to build such systematic business capabilities themselves.
That is, the platform capability of Toolots is built once, and shared and used repetitively by tens of thousands of manufacturers.
Since its inception in 2016, Toolots' M2U platform has attracted over 800 manufacturers and started to see sales growing exponentially.
What does M2U have to do with Industry 4.0 and "Mass Customization”？
The design of the M2U platform has proven to be effective in marketing thanks to the collective power of the technological enablement.
But marketing was not the only goal of Toolots M2U model.
M2U also aims to change how the manufacturing is done.
M2U model is the other missing enablement for Industry 4.0 besides technology.
As discussed above, Industry 4.0 will need all the enabling technologies. But it also need an enabling business model.
Even if one assumes that most of the necessary enabling technological components will be developed and provided by third-party suppliers, Industry 4.0 would still be far beyond the reach of vast majority of manufacturers. This would remain the case even after such technologies are mature and ready.
The reason is simple economically reality. One cannot expect regular manufacturers, with the exception of just minimal number of heavyweight global players, to be able to create or even participate the complex and expensive Industry 4.0 processes.
There needs to be a right kind of platform business model operating in concert with enabling technologies to enable most manufacturers to participate the Industry 4.0 processes.
We believe M2U will be a viable candidate for that solution.
Mass Customization could be one of the many fruits of M2U platform.
Customization in B2B
M2U will first address mass customization in the context of B2B.
Customization level in B2B is inherently more common and more demanded than that in B2C. But still, customization in B2B is hard.
The difficulties mostly arise from the current way the manufacturers and users are connected. The multi-layer intermediation created for territorial and marketing purposes also resulted in large barriers to customization, among many other things. If such intermediation has been historically a necessary evil for marketing and after-sales services, it has never served any good for customization.
Now that M2U reduces traditional intermediation, it naturally also results in an advantage in customization.
However, M2U aims beyond the natural advantages of the business model in customization. Once the platform is built, it will be more adept to solve myriad problems in custom production, starting with the manufacturing of industrial equipment.
That the customization of industrial equipment is difficult might surprise many people. Certainly it should be easier than customization of consumer products, right? Well it is. But the fact is that, without proper communication and collaboration mechanisms in the context of real commerce and industrial processes, even B2B customization is difficult, and the manufacturing of industrial equipment is no exception.
M2U Platform Aims To Solve This Problem.
The platform will provide effective communication channels and collaboration mechanisms in the context of real commerce. We are not talking about a messaging system, which is easy to do. We are talking about actual mechanisms where the customization information is properly communicated to knowledgeable personnel who can then effectively connect, communicate, and eventually implement at the manufacturing level.
For most manufacturers, especially manufacturers that do business overseas, it is close to impossible, or at least extremely cost ineffective, to establish such collaborative capability to handle the entire process. Remember the the major reasons why manufacturers choose OEM model in the first place despite their knowing of being locked into the lower end of the value chain in so doing.
Therefore, it is essential to build platform capabilities for such processes, and share them on the platform among a large number of merchants (manufacturers) which are the platform customers.
And that is exactly Toolots wants to do and is already doing. The platform has been developing a shared ERP (sEPR) system for this purpose and also is also building a division called "Merchant Corporate Solutions (MCS)" which functions as "virtual corporate departments" of the merchants (manufacturers) on the platform.
The Toolots platform started with very basic but important virtual corporate functions. It hasn't got to a realistic point to enable effective "mass customization" yet. But we believe it is the right direction because it has the right business model which is a necessary enabling arm to support the Industry 4.0 revolution.
Toolots' long term goal it to support smart manufacturing, which joins physical production and operations with smart digital technology, machine learning, and big data to create a more holistic and better connected ecosystem for companies in manufacturing and supply chain management.
We believe it is a far better model than just letting each individual manufacturer struggle alone on the road of Industry 4.0 and mass customization. On that road, very few will make it.
Article by Gao Zeming, Chief Strategy Officer, Toolots, Inc. June, 2019