Exploring Industry Business Models

Discrete industries and process industries are two different types of manufacturing industries, each with distinct characteristics and operational processes. The main difference lies in the nature of the products they produce and the way they carry out their manufacturing processes.

• Products: Produces distinct, countable, and individualized items (for example, electronics, furniture, or machines).
• Processes:
  • Involves the assembly or fabrication of individual components to create a final product.
  • Follows a sequence of operations, such as machining, assembly, testing, and packaging.
• Characteristics:
  • Customization and variability are common—products may have unique specifications tailored to customer needs.
  • Production volumes can vary, ranging from low-volume, high-mix (for example, custom products) to high-volume, low-mix (for example, mass production).

• Products: Produces materials or substances in bulk quantities that are not easily distinguishable (for example., chemicals, petroleum, food, pharmaceuticals).
• Processes:
  • Involves blending, mixing, or transforming raw materials.
  • Operates either continuously (for example, oil refineries) or in batches (for example., specialty chemicals).
• Characteristics:
  • Products are homogeneous and require precise formulation or recipe management.
  • Quality control and consistency are critical.

The size of machines in industrial manufacturing is closely tied to their power, production capacity, and the scale of products they are designed to handle.

Small machines are compact and typically suited for small-scale production or precision tasks. They are commonly used in research labs, prototyping, and low-volume production environments.

Examples: Desktop 3D printers, laser engravers, microelectronics equipment, and small Computer Numerical Control (CNC) machines.

Key Characteristics: Small footprint, ideal for precise, low-volume applications.

Mid-sized machines are larger and more powerful than small machines, enabling them to handle moderate to high production volumes. They are widely used in industries such as automotive, aerospace, and general manufacturing.

Examples: Milling machines, drilling machines, industrial robots, injection molding machines, and metal cutting machines.

Key Characteristics: Versatile, capable of working with various materials, and often integrated into automated production lines.

Large machines are heavy-duty and built for industrial-scale manufacturing operations. They are essential in industries such as heavy machinery production, construction, and shipbuilding.

Examples: Large CNC (Computer Numerical Control) machining centers, industrial presses, forging machines, and assembly lines.

Key Characteristics: Require specialized facilities and infrastructure to accommodate their size, power, and operational needs.

Industrial manufacturers select machines based on specific production requirements, considering factors such as:

• Production volume
• Product complexity
• Available space
• Cost considerations

Each size category serves a distinct role in manufacturing, ensuring that production processes are efficient and tailored to the demands of the industry.

Different levels of customization and flexibility in manufacturing can be categorized into distinct typologies. These typologies enable companies to strike a balance between standardization and customization, aligning their production strategies with customer demands, product complexity, and market dynamics. Each typology comes with its own set of advantages and challenges, impacting factors such as lead time, inventory management, production complexity, and customer satisfaction. By understanding these typologies, manufacturers can optimize their processes and resources to effectively meet customer needs while ensuring efficiency and cost control.

Manufacturing Typologies:

• Products are manufactured based on demand forecasts and stored in inventory before customer orders are received.
• Key Characteristics:
  • Production is standardized and not customer-specific.
  • Products are shipped directly from inventory when an order is placed.
• Advantages: Quick delivery and streamlined production.
• Challenges: Risk of overproduction or stock shortages due to inaccurate demand forecasts.

• Standard components or sub-assemblies are pre-manufactured and stocked. Upon receiving an order, these components are assembled to meet specific customer requirements.

• Key Characteristics:

  • Allows for partial customization.

  • Combines efficiency of pre-made components with flexibility in final assembly.

• Advantages: Shorter lead times than full customization.

• Challenges: Limited customization compared to more flexible typologies.

• Customers can choose from predefined configurations for specific product features (for example, colors, sizes, or accessories). The selected configuration is assembled and delivered upon order.

• Key Characteristics: Focuses on offering tailored options within a structured framework.

• Advantages: High degree of customization with manageable complexity.

• Challenges: Requires a well-defined configuration system to avoid production errors.

• Builds on CTO by providing additional customization options beyond predefined configurations. Customers can further personalize certain aspects of the product within specified limits.

• Key Characteristics: May involve engineering modifications or tailored production processes.

• Advantages: Greater flexibility to meet unique customer needs.

• Challenges: Increases complexity and production lead times compared to standard CTO.

• Products are fully customized and designed from scratch to meet specific customer requirements. Each order requires unique engineering and design work.

• Key Characteristics:

  • Involves collaboration with the customer to define specifications.

  • Production starts only after the order is confirmed.

• Advantages: Maximum customization and customer satisfaction.

• Challenges: Long lead times, high costs, and significant resource investment.

The industry network forms the backbone of industrial manufacturing, connecting suppliers, manufacturers, distributors, customers, and third parties. This network ensures the seamless flow of materials, efficient production processes, and timely delivery of products.

Industrial users can be categorized into four key groups:

1. Primary Industry Users: Depend on large, heavy-duty machinery as a means of production. Industries include agriculture, mining, utilities, paper and pulp, and metals.
2. Discrete Manufacturing Companies: Use machinery to enhance efficiency in their production operations. Example: Robots utilized in production lines.
3. Companies Incorporating Machinery Sub-Assemblies: Integrate components like motors, gears, or pumps into their final products. Examples: Industrial manufacturers, automotive companies, high-tech manufacturers.
4. Specialist Providers of Parts and Services: Focus on after-sales maintenance, repair, and servicing of machinery.

Distributors, Wholesalers, and Brokers: Machines are delivered to customers either: Directly by the manufacturer’s sales force, or through distributors and resellers, who often provide value-added services like installation, training, and repair.

Industrial Component & Small Machinery manufacturer: Focus on components or sub-assemblies such as electric motors, gearboxes, and pumps.

Larger Industrial Machinery Manufacturers, Original Equipment Manufacturers (OEMs): Buy smaller systems and build them into their own products.

Examples: Tetra Pak (food packaging) and Caterpillar (construction and mining).

OEM Products Include:

• Construction, mining, agricultural, and forestry machinery.
• Power generation and distribution equipment.
• Processing and plant equipment.
• Handling and storage systems.
• Heating, ventilation, and air conditioning (HVAC) systems.

Raw Material and Component Suppliers: Machinery makers typically source basic components and materials from specialist companies rather than producing them in-house. Common "bought-in" components include:

• Metals and Plastics.
• Fasteners.
• Power supplies.
• Electronics.

These components are integrated into the final products, ensuring quality and reliability.

Maintenance and Repair Services: These services can be provided by the machinery manufacturer or third-party companies, and include:

• Equipment maintenance.
• Repairs.
• Upgrades.
• Retrofits.
• Calibration Services.
• Predictive Maintenance.

Regulatory Bodies: They play a critical role in the industry supply chain by establishing and enforcing compliance, safety, and sustainability standards. Their contributions include:

• Setting Standards and Regulations.
• Compliance monitoring and enforcement.
• Product Certification and Accreditation.
• Occupational Health and Safety.
• Consumer Protection.

Financial Institutions: Financial institutions support industrial manufacturing businesses by offering:

• Capital Investment and Working Capital Support.
• Trade Finance and Risk Management.
• Cash Management Services.
• Advisory Services, Mergers and Acquisitions.

Packaging Providers: Specialized packaging companies ensure the safe, efficient transportation, storage, and presentation of machinery and components.

• Discrete industries create countable, customizable products through assembly, while Process industries produce bulk, homogeneous materials using continuous or batch methods.
• Machine size impacts production scale: small machines handle precision tasks, mid-sized machines suit versatile needs, and large machines enable industrial-scale operations.
• Typologies range from standardized Make-to-Stock to fully customized Engineer-to-Order, balancing efficiency and customization to meet customer needs.

• The manufacturing network connects suppliers, OEMs, distributors, and service providers, ensuring material flow, efficiency, and regulatory compliance.