The future of Custom Manufacturing is...Pizza?

In recent conversations with job shop owners, they’re asking questions like, “What does the future of manufacturing look like?” and “Will my shop have a place in it?” Job shop owners, particularly those who have recently acquired a shop or transitioning second generation owners, are worried that small shops are an endangered species. The rise of mega shops such as ProtoLabs, Plethora, and buyout groups such as Transdigm and Triumph are using technology and computerized standard process as a competitive advantage.  

How can smaller shops compete?

The answer is to look at the pizza industry. Fifty years ago the industry was dominated by independent, local pizza shops, most of them with a single location. Today we have a mix of national chains, regional players and yes, strong, independent single location pizza shops. And like these local pizza shops, my belief is that smaller job shops will thrive in the future. There will be a place for them alongside large companies and national job shops. The lesson is that the local pizza parlor had to adapt to compete in the changing environment. The ones who were willing to do so implemented technology solutions such as “Toast” software, created a more personal customer relationship and offered non-standard products. For example the Toast Point of Sale management software provides small pizza shops with the same level of technology for managing their operations that large restaurant chains use. 

What are the similarities between small and large shops?  

Pizza shops and custom manufacturers both have a physical location (here I think the advantage goes to smaller shops as they have more flexibility on where that location can be, meaning a lower facility cost). They both have a significant portion of their costs in material (cheese, dough toppings, sauce – metals/plastics, hardware, tooling, finishing). It is true that larger players can negotiate and obtain better pricing. However, I foresee the development of buying coops being formed between smaller shops. Technology will make this easier and the overhead very inexpensive, with the result that the difference in material pricing between large and small players will be dramatically reduced. Finally, both job shops and pizza shops hire people. Large shops tend to have higher sales per employee, but they also have a higher cost per employee due to benefits and increased management overhead costs.

Typically, implementing technology was the differentiator and a huge advantage for large shops.  Today, it is much easier and cost effective for small shops to put in place advanced technology. Whereas large shops often invest in building custom solutions which requires hiring expensive in-house software developers, companies like Toast for the restaurant industry and Paperless Parts for manufacturing provide tools with the same features and in many instances, unique solutions beyond what is feasible from an in-house software team. By having hundreds or thousands of customers and using the cloud, development costs are spread across all users with the result being that the pricing is very inexpensive. Switching to cloud rather than desktop based software means less in-house knowledge (ie people with computer skills) for the small shop to worry about – just sign-up and start being productive!

So how will a small job shop thrive? 

The larger the shop, the less flexible they are in the types of parts they will or want to make, and the primary contact will be (typically) less knowledgeable about the process. The small shop who puts in place cloud technology for communication and front office tasks, continues to invest in new shop floor equipment, and makes sure they are customer friendly will find their place with customers who aren't a good fit for large shops or just don’t want to deal with the rigidness of the big guys. The storefront independent pizza shop is thriving and with the right tools and mindset, so will your shop!

-Jay Jacobs

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Jay Jacobs was the founder and CEO of RAPID, a CNC machining and sheet metal shop that grew to $50M in sales and was sold to Proto Labs, Inc. (PRLB) in 2017 for $120M. Today, Jay is a champion for American manufacturing and is working through Paperless Parts to enable job shop owners to compete in today’s increasingly digital and web-based business world.