Level 3: Manufacturer

The sub-levels of level 3

Sub-levels are a first draft, being refined. A manufacturer makes products. Within this level, businesses differ in who owns the materials and the design, how close they are to the brand that sells the final product (the OEM), and who decides the price. They are listed roughly in order of money needed, risk, control and value added; real businesses do not always climb in this order.

1. 3.1

   Job worker

   You carry out a process, such as machining, plating, heat treatment, printing or stitching, on goods that belong to someone else, and charge for the work. Under GST, job work means any treatment or process done on goods belonging to another registered person; the goods stay the owner's.

   Example: A powder-coating unit coating sheet-metal parts for a fabricator; a unit stitching garments from fabric supplied by the customer.

   Money

   Small to moderate: machines for one or two processes and a shed. No raw-material stock, because the customer supplies the goods.

   Risk

   Idle machines when orders dip, rates set by the customer, and responsibility for goods in your care.

   Control

   Low: the customer owns the goods and the design and sets the rate.

   To climb

   Add processes and quality systems, buy material yourself, and start delivering finished parts.

2. 3.2

   Contract manufacturer (including ODM and EMS)

   You make complete products that another company sells under its own brand; that brand is the OEM. A contract manufacturer makes to the brand's design. An original design manufacturer (ODM) makes products to its own design, which brands sell under their names. Electronics manufacturing services (EMS) is the name for contract manufacturing in electronics.

   Example: A plant making shampoo or biscuits that brands sell under their own labels; an electronics company assembling phones or chargers for brands.

   Money

   Moderate to large: production lines, testing, quality certifications and raw material.

   Risk

   A few big customers who can move their orders, and pressure to cut prices.

   Control

   Medium: you own your process (and, as an ODM, your designs), but the brand owns the customer.

   To climb

   Win long contracts that need engineering work and customer approvals, so that you become hard to replace.

3. 3.3

   Component supplier (Tier 2, then Tier 1)

   You make parts that go into another company's product. A Tier 2 supplier sells parts to a Tier 1 supplier; a Tier 1 supplier sells parts, modules or systems directly to the OEM. The terms are most used in the vehicle industry.

   Example: A Tier 2 unit machining small parts for a brake-system maker; a Tier 1 company supplying seats or lamps directly to a vehicle maker.

   Money

   Large: precision machines, tooling, testing equipment, and the time and cost of customer approvals.

   Risk

   Long approval periods, yearly price-down demands, and dependence on a few customers' programmes.

   Control

   Grows as you move up to Tier 1 and supply parts that are hard to replace.

   To climb

   Design and engineering ability, plus the scale to carry approval costs; or a standard product of your own sold to many buyers.

4. 3.4

   Commodity or bulk manufacturer

   You make a standard product with your own process and materials and sell it to many buyers at the market price. Cement, steel bars, plastic granules, paper, edible oil and corrugated boxes are examples.

   Example: A rolling mill making TMT bars; a corrugated-box plant serving many factories in its area.

   Money

   Large to very large: plant, land, power connection and raw-material stock.

   Risk

   The market sets your price, raw-material costs swing, and idle capacity hurts because fixed costs run anyway.

   Control

   You own the product and choose your buyers, but not the price.

   To climb

   Build a brand that buyers ask for by name, so you can charge more than the commodity price.

5. 3.5

   Own-brand manufacturer (the OEM)

   You make, or have made for you, products sold under your own brand. You are the OEM: the brand whose name is on the product, which decides its design and price and is responsible for it.

   Example: A pump maker selling under its own brand through dealers; a food company selling its own packaged brand.

   Money

   Very large: a factory or contract manufacturers, plus brand building, a dealer network and working capital.

   Risk

   Marketing and dealer costs before the sales come, responsibility for product faults, and competing with established brands.

   Control

   The most a manufacturer gets: you set the design, the price and how it is sold.

   To climb

   The next step is a new level: products that customers cannot easily get elsewhere (Level 4).