Contract Manufacturing; When Is Too Big Still Not Big Enough
Posted: Tue Mar 17, 2015 12:34 am
My standard strategy for factory building has often been to build a small factory first, then shift production to a larger new factory, and re-purpose the small factory to some other product. Take bottled milk for example. All the bottling and sometimes even the glass making can be done in a small factory. Later all the bottling is done in the large factory and all the glass in the former small bottling factory. It's pretty efficient, and it works...
Except sometimes I find myself with too many useless little factories. Although a small factory at high level can be very efficient, once you change it to an entirely different product type the manufacturing units all go back to Level 1. Changing raw material sources is not a problem (I'll come back to that later), nor is changing unit connectors inside the factory, just changing what is being produced removes your training. It might be better if I had just started in a large factory firm to being with, and just change the floor plan as the business expanded. By the way, this all assumes that R&D is automatically applied to factories, and that they all produce at the same tech level.
What brings this standard practice into question is the scenario Fashion Venture. Even though it is first in Lab's list of scenarios, it can be the hardest to complete. Unlike each of the other scenarios, every AI is given a 5 year head start where you can do nothing but watch time pass. You have to claw your way into the economy and face one or two established competitors in your apparel space. I find that at least one competitor will be so entrenched, I have to acquire and merge their company in order to gain dominance. If there is an easy alternative, please do share.
Although not cheating, making more money than the AI and buying out the competition certainly achieves the main objective, there should be a "purer" way of competing directly in the apparel space. My approach has been mostly the same as in other scenarios; vertically integrate as quickly as possible and win over market share. If there is a tangent product class (like leather goods to apparel), I'll compete in that space as well for the operational efficiency. What I have not done from the beginning is taking the position of not starting to vertically integrate, and just stay horizontal for awhile.
Somewhere in the three to five year mark, the product quality advantage of seaports start to drop off. At the beginning, it is good business to buy from seaports, re-brand, and sell in your own stores while trying to push up brand identity as quickly as possible. This advantage ends when those products that can be sold at good margin get snapped up by the AI, such that demand exceeds supply and availability gets spotty. Raw materials are also cheaper and higher quality than either you or the AI can produce. However you see the economy switch sources when supplies get disrupted, and this is often when the AI enters the market with semis and raw materials. To be honest, this usually keeps me from producing goods like leather, unless there is some other good from the livestock I can sell until the farm's quality gets high enough.
The seaport is not the only source for injecting inefficiencies in the market, the very inefficiencies I want to take advantage of being five years behind the AI. Because of CEO specialization and focus, they take care of their companies well, but do not necessarily take care of everything necessary in their segment of the supply chain. It is up to the Fashion Venture player to spot those inefficiencies and make money off of them.
Contract Manufacturing And White-Labeling...Whose Product Is It Anyway?
When the AI or seaport sells consumer goods wholesale, that is essentially white labeling or private labeling depending on semantics. In real life if I agree to have another manufacturing make my product, that is contract manufacturing. The subtlety is in who owns the design and who has rights to distribution. Cap Lab has white/private labeling, but has no mechanism for contract manufacturing (which would be possible in a multi-player game in theory). But you can sort of trick the AI into letting you contract manufacture for it. If you place your factory near another AI's retail space (minimizing freight) and begin making goods he wants at a good quality and price, likely he will buy from you. If he has no other source, even better. If you can keep up with demand, that assumed partner agreement could last for a long time.
This is exactly what I have NOT done in Fashion Venture, and what would be nice to try again. Because when your factories produce goods for anybody, not just your retail stores, those factories benefit from the training program and get more efficient. To play catch up purely in apparel, let the AI worry about retail strategy and let the player just focus on manufacturing capacity. Though it is hard to see it in the P&L as a vertical, a lot of the profit margin (maybe most?) in the supply chain is in manufacturing. And if you are manufacturing and shipping off to a warehouse, good chance your training will stay constant for the factory, maybe not so much for the warehouse.
Earlier I mentioned changing raw material sources. In a sweater factory, if you switch supplies from a Quality 45 wool to a Quality 30 wool, the factory level doesn't change. The quality output will of course change. Sweaters are a good example, because if sweater/sock production outruns the wool supply, you'll see supply disruptions during the shearing's off season. So in Fashion Venture 1995, there is nothing keeping me from selling sweaters off season made with Level 30 wool and 19 Tech, if an AI is willing to buy it. Set the price low enough and a pure retail AI might do that. If that AI is not apparel specialized, my competition may have to face market share erosion and/or brand damage from supply disruption. Next time I want to take a closer look at the AI's brand levels and strategies, especially the pure retail AIs.
Back to the small factory issue. What if I put a small factory to work making inferior product to sell to the AI or blow out through my own discount mega-store in a city in which I have not yet established brand? I think the prices could be jiggled so that the price is heavily discounted and both the retail and factory make profit. It can just pull raw materials from a regional warehouse and put finished goods back in, to be drawn down by the retail firm. It may take longer than running it through a big factory, but in this scenario I don't care about speed. The big factories are working hard on the core product lines.
As to big factory usage, I need to get better in carving them up into small business units. In the case of milk bottling, I can do the following within a big factory:
Buy Silica ==> Make Glass ==> Sell Glass
Buy Milk + Use Glass ==> Make Bottled Milk ==> Inventory/Sell Bottled Milk
Now my wine factory can buy glass from my bottled milk factory, but that one factory segment of glass produces almost as much as an entire small factory. Early in its career there will be glass overproduction, but that can get dumped onto the open market at a discount or stashed into a warehouse for when demand increases.
When the big factory isn't big enough, I'll start combining two or more big factories into one big warehouse for ease of distribution, or build more big factories closer to the retail and still move some of the production back through a distribution center warehouse.
Except sometimes I find myself with too many useless little factories. Although a small factory at high level can be very efficient, once you change it to an entirely different product type the manufacturing units all go back to Level 1. Changing raw material sources is not a problem (I'll come back to that later), nor is changing unit connectors inside the factory, just changing what is being produced removes your training. It might be better if I had just started in a large factory firm to being with, and just change the floor plan as the business expanded. By the way, this all assumes that R&D is automatically applied to factories, and that they all produce at the same tech level.
What brings this standard practice into question is the scenario Fashion Venture. Even though it is first in Lab's list of scenarios, it can be the hardest to complete. Unlike each of the other scenarios, every AI is given a 5 year head start where you can do nothing but watch time pass. You have to claw your way into the economy and face one or two established competitors in your apparel space. I find that at least one competitor will be so entrenched, I have to acquire and merge their company in order to gain dominance. If there is an easy alternative, please do share.
Although not cheating, making more money than the AI and buying out the competition certainly achieves the main objective, there should be a "purer" way of competing directly in the apparel space. My approach has been mostly the same as in other scenarios; vertically integrate as quickly as possible and win over market share. If there is a tangent product class (like leather goods to apparel), I'll compete in that space as well for the operational efficiency. What I have not done from the beginning is taking the position of not starting to vertically integrate, and just stay horizontal for awhile.
Somewhere in the three to five year mark, the product quality advantage of seaports start to drop off. At the beginning, it is good business to buy from seaports, re-brand, and sell in your own stores while trying to push up brand identity as quickly as possible. This advantage ends when those products that can be sold at good margin get snapped up by the AI, such that demand exceeds supply and availability gets spotty. Raw materials are also cheaper and higher quality than either you or the AI can produce. However you see the economy switch sources when supplies get disrupted, and this is often when the AI enters the market with semis and raw materials. To be honest, this usually keeps me from producing goods like leather, unless there is some other good from the livestock I can sell until the farm's quality gets high enough.
The seaport is not the only source for injecting inefficiencies in the market, the very inefficiencies I want to take advantage of being five years behind the AI. Because of CEO specialization and focus, they take care of their companies well, but do not necessarily take care of everything necessary in their segment of the supply chain. It is up to the Fashion Venture player to spot those inefficiencies and make money off of them.
Contract Manufacturing And White-Labeling...Whose Product Is It Anyway?
When the AI or seaport sells consumer goods wholesale, that is essentially white labeling or private labeling depending on semantics. In real life if I agree to have another manufacturing make my product, that is contract manufacturing. The subtlety is in who owns the design and who has rights to distribution. Cap Lab has white/private labeling, but has no mechanism for contract manufacturing (which would be possible in a multi-player game in theory). But you can sort of trick the AI into letting you contract manufacture for it. If you place your factory near another AI's retail space (minimizing freight) and begin making goods he wants at a good quality and price, likely he will buy from you. If he has no other source, even better. If you can keep up with demand, that assumed partner agreement could last for a long time.
This is exactly what I have NOT done in Fashion Venture, and what would be nice to try again. Because when your factories produce goods for anybody, not just your retail stores, those factories benefit from the training program and get more efficient. To play catch up purely in apparel, let the AI worry about retail strategy and let the player just focus on manufacturing capacity. Though it is hard to see it in the P&L as a vertical, a lot of the profit margin (maybe most?) in the supply chain is in manufacturing. And if you are manufacturing and shipping off to a warehouse, good chance your training will stay constant for the factory, maybe not so much for the warehouse.
Earlier I mentioned changing raw material sources. In a sweater factory, if you switch supplies from a Quality 45 wool to a Quality 30 wool, the factory level doesn't change. The quality output will of course change. Sweaters are a good example, because if sweater/sock production outruns the wool supply, you'll see supply disruptions during the shearing's off season. So in Fashion Venture 1995, there is nothing keeping me from selling sweaters off season made with Level 30 wool and 19 Tech, if an AI is willing to buy it. Set the price low enough and a pure retail AI might do that. If that AI is not apparel specialized, my competition may have to face market share erosion and/or brand damage from supply disruption. Next time I want to take a closer look at the AI's brand levels and strategies, especially the pure retail AIs.
Back to the small factory issue. What if I put a small factory to work making inferior product to sell to the AI or blow out through my own discount mega-store in a city in which I have not yet established brand? I think the prices could be jiggled so that the price is heavily discounted and both the retail and factory make profit. It can just pull raw materials from a regional warehouse and put finished goods back in, to be drawn down by the retail firm. It may take longer than running it through a big factory, but in this scenario I don't care about speed. The big factories are working hard on the core product lines.
As to big factory usage, I need to get better in carving them up into small business units. In the case of milk bottling, I can do the following within a big factory:
Buy Silica ==> Make Glass ==> Sell Glass
Buy Milk + Use Glass ==> Make Bottled Milk ==> Inventory/Sell Bottled Milk
Now my wine factory can buy glass from my bottled milk factory, but that one factory segment of glass produces almost as much as an entire small factory. Early in its career there will be glass overproduction, but that can get dumped onto the open market at a discount or stashed into a warehouse for when demand increases.
When the big factory isn't big enough, I'll start combining two or more big factories into one big warehouse for ease of distribution, or build more big factories closer to the retail and still move some of the production back through a distribution center warehouse.
