Could we reduce inventory risk and boost sustainability by shifting to on-demand manufacturing? An growing number of industry experts think we can. The growth in e-commerce has pushed online brands and suppliers to find more flexible ways to manage inventory and meet demand for more customized products. The growth in online footwear and apparel brands that offer customers the option to customize a product has been at the core of this movement. Increasingly, brands are turning to micro-factories to get the job done. The system they use is often referred to as Purchase Activated Manufacturing (PAM), Virtual Inventory Manufacturing (VIM), or Manufacturing On Demand. <h3><strong>Fast and Flexible</strong></h3> The advantages are tempting. No inventory of finished goods (you do have to stock the materials), all orders are 100% pre-paid, and the capital requirements to set up the factory can be as little as US$500,000, according to Chris Walker, an expert in Vietnam Sourcing. According to Mr. Walker, fast fashion takes about six to seven weeks from ordering to deliver. Using the PAM model, orders are placed one piece at a time buy consumers via the brand's website or app. Turnaround time for a personalized garment or shoes - from receiving the order to delivery - is usually about 10 days. Plus, with garments produced only when the consumer has already purchased it, there’s far less waste. That’s good new for sustainability concerns. <h3><strong>Seeking Stability</strong></h3> The downside is that orders can be erratic - lots of orders one day, then very few the next few days. Further, it is critical for the factory have the materials on hand in order to support these ultra fast lead times. With no advance order placement, managing materials is tricky. Further, while typical retail models are driven by cost (price) and design, this e-commerce based model relies heavily upon marketing. The marketing is essential to keep order volumes above the factory’s breakeven point. And that is often where the train jumps the tracks. With orders coming in one piece at a time, and consumer demand being fickle, maintaining production levels is not easy. The reality of this risk must not be underestimated. Micro-factories offer a solution to the new demands from e-commerce. For big factories, adding on a micro-factory provide the flexibility to serve new customers, while leveraging the advantages that larger factories have. <h3><strong>Small and Flexible</strong></h3> Another model that’s proving successful is one where manufacturing is geared towards small orders – but not as small as on-demand. Smaller factories, usually working on more complex styles, give manufacturers the flexibility they need to compete in a market that is looking for better quality in terms of both design and workmanship. This model has been proving to be successful manufacturers in Southern China (and even a few in Hong Kong) who are producing high end denim collections or premium outerwear. Being less price sensitive and more dependent upon skills, its capitalizing on unique advantages in China. Still, with new developments in technology, microfactories will continue find ways to minimize risk while raising productivity.