By Elsie Jamin-Maguire
In our age of digitalization and the pervasive spread of e-commerce technologies and other platforms, raw material suppliers have the tools to connect directly with smaller manufacturers. This emerging technology has been a sea change for suppliers, considering that 75 percent of all manufacturing firms in the U.S. have fewer than 20 employees.
In the past, raw material suppliers would overlook the small manufacturing firms, preferring to serve the larger volumes ordered by regional and global businesses. This slight meant that small and medium-sized firms turned to distributors to source their raw material needs. However, with new digital platforms, suppliers can easily work directly with all manufacturers, regardless of size.
Platforms that bring together suppliers and buyers
Many of the smaller component manufacturing businesses — some family-owned — have been providing valuable parts to vehicle, medical, appliance and electronic manufacturers for years. The digital platforms work by connecting the suppliers directly to these manufacturers. The result is around-the-clock access, simplified procurement processes and lower prices coupled with transparency and total supply chain visibility.
Meanwhile, the suppliers gain an extra sales channel which gives them access to new customers and markets. Over decades of dedicated service to larger enterprises, these businesses have accumulated a vast web of connections linking distributors, value-added resellers, suppliers, and logistics providers.
The result is a value chain of data that can be monetized and offered to other firms through a subscription or transactional model. This valuable data includes pricing, specifications, production details, delivery dates and more.
Turning data into a profit center
Raw material suppliers are building digital platforms to create profit centers beyond production and lower costs. A broad range of companies can access these sophisticated platforms.
One example of a thriving digital platform that’s used by both buyers and suppliers is Europe’s Pinpools, a leading online marketplace that serves 100+ chemical manufacturers, distributors and buyers. Launched in 2017, Pinpools primarily serves the paint and coatings market in Europe. Buyers can use the website free of charge and suppliers pay a monthly fee, which can average between one to three percent depending on sales volume.
E-commerce platforms such as Pinpools are also designed to reduce the uncertainty associated with shortages and fluctuations in demand, a widespread problem within the chemical industry. First movers in this growing segment are developing platforms at a record pace to build market share.
In some cases, regional and local manufacturers are partnering with other firms, including international companies in Europe, China and Asia — as well as distributors — to develop and launch these platforms. Alibaba, a leading platform for global wholesale trade, is probably the most well-known company in this group. Univar Solutions is another major player in the sector with its insurgent Myunivar.com portal.
The best digital platforms are designed to solve several problems that vex buyers: inaccurate product pricing, fluid delivery dates and inexplicable product specification changes. Thanks to advanced technology like AI and data analytics, customers are kept informed of any price swings and delivery dates in real-time.
Platform customers also have access to financial resources that are beyond the means of distributors: extended payment terms and short-term loans, for example. Cashflow challenges can quickly arise due to razor-thin margins of around three percent, where manufacturers are squeezed between raw material suppliers and their customers.
Subscribers can even apply and secure financial support through the platforms. Alibaba, for instance, offers an e-credit line to buyers as well as trade assurance, which protects buyers from suppliers that fail to deliver promised goods.
How to get started building a data platform
Companies may want to develop e-commerce platforms or online marketplaces with a partner. Seeking out other manufacturers and suppliers can enable knowledge sharing and costs while minimizing your risk.
Partnering with digital consultancies here can provide immediate advantages, like access to established best practices in building new products and services, due diligence on competitive offerings, and the ability to build working prototypes that solve unique, industry-specific problems.
These future product platforms could combine operations and logistics data — information that’s provided today by standalone systems. Integrated systems would allow manufacturers to signal the platform when it was time to replenish the inventory and automatically trigger an order. At the same time, the system could pull in logistics data, which would give the buyer full supply chain visibility. These systems would provide customers with a 360-degree view into product location, arrival date and data regarding product condition (damaged goods, for instance).
To be sure, advanced technology and digital platforms are making it easier for raw material suppliers to work with smaller manufacturing companies around the world, profitably. Today, these platforms, which leverage AI, big data, and business intelligence, can be built by teams of manufacturers and suppliers to share the risk, investment and knowledge.
For companies contemplating how to leverage their data toward the creation of new and relevant digital revenue models, Nerdery’s strategy and data services practices provide nimble partnership for smart success. Get in touch today and engage our experts for a brief dialogue or to set up a simple workshop to move your team forward.
Published on 10.10.19