Contract Manufacturing Platforms to Alleviate Manufacturing Bottle Necks

The specter of factories shutdown due to localized COIVD outbreaks, parts stuck at ports, and shortages of skilled labor closer to home presented headaches for manufacturers in Europe and North America. Meanwhile, there are manufacturers with equipment standing idle. These circumstances present opportunities as online marketplaces for batch manufacturing to come to the fore.

Fractory, Qimtek, Xometry, and 3D HUBS look to match customers needing parts quickly with manufacturers that can accommodate the work. The customers get access to a wider pool of manufacturers without needing to review dozens of quotes while the contractor gets an additional revenue stream.

These platforms are more than a listings service. The marketplaces’ business model is to confirm the customer’s requirements, then prepare and host the listing. Contractors pay to subscribe to the platform and respond to listings, having browsed the marketplace or having been approached by the marketplace provider.

 The online marketplace not only acts as a matchmaking service but also authenticates the customers’ requirements (design, delivery schedule, Minimum Order Quantity) by using AI and process automations.

The objective is the same for each supplier but the business models to achieve it vary.

Fractory was founded in Estonia in 2017, and is now headquartered in Manchester, England. In September 2021, Fractory announced a Series A funding round worth US$9 million, which was led by OTB Ventures. Customers from the construction, marine, and automotive sectors submit requirements for custom metalworking, laser cutting, or computer numerical control (CNC) machining. The company has customers across the UK, Ireland, the Baltic States, Finland, Sweden, and the United States with contractors creating over 2.5 million parts since inception. Customers load a computer-aided design (CAD) file outlining their requirements and, after payment, Fractory’s algorithms generates a list of contractors it deems best suited for the work, who are then approached by Fractory to bid for the work. Although Fractory looks to automate as much as possible, there are staff available to advise both customers and contractors.

Qimtek was founded in 2004 and is a subscription service for contractors involved in CNC Machining, fabrication, sheet metal forming, or plastics manufacturing. The likes of BAE Systems, Caterpillar, and Thales load their requirements free of charge and contractors that subscribe to the service receive the leads.

Headquartered in Derwood, Maryland, Xometry operates on a grand scale. The company was founded in 2013 and in September 2020, the company claimed relationships with 5,000 manufacturing contractors around the world. Activities supported included CNC machining, sheet metal fabrication, 3D printing, and injection molding. Transactions involving more than six million parts have been placed on Xometry’s platform since its foundation.

The company’s AI-enabled processes look to provide job quotes instantaneously by analyzing the CAD file submitted by the customers, the manufacturing technologies and materials selected, and volumes involved. Like Fractory, Xometry staff are available to assist with the selection of technologies and materials.

Xometry’s revenues are primarily generated from the price they charge customers to post their jobs on their platform, plus value-add services including providing supplies and financing to contractors. The company reported revenues of US$141 million in 2020 and revenue growth of CAGR 92% from 2018 to 2020. Shares in the company have been available on the Nasdaq exchange since June 2021.

Also founded in 2013, 3D HUBS originally offered 3D printing services, but since 2018 has added CNC machining, injection molding, and sheet metal fabrication. The company counts 240 manufacturing partners located across twenty countries worldwide. The company reports that 2020 revenues reached US$25 million and have grown at a CAGR of more than 200% since 2017. 3D HUBS was acquired by Protolabs in January 2021 for US$280 million.

Online marketplaces for contract manufacturing help customers save time to commission suppliers for short batch runs. The platforms clearly provide additional revenues for contract manufacturers instead of their machines remaining idle. However, there remain concerns for all parties.

The marketplaces rely on trust. Can the manufacturing contractor fulfil the order on time and to the exact quality specified? On the other hand, will the customer’s requirements change at the last-minute forcing delays and disruptions to existing requirements?

A further concern for the marketplace provider is the challenge to scale. Although in theory, the AI can scan the CAD file and apply machine learning identifying traits of jobs, it is not necessarily an automated process. Staff members remain involved in validating job requirements.

The pressure on the marketplace is to maintain engagement levels by having sufficient work to engage contractors and enough contractors to fulfil orders. Custom jobs by definition are not repeatable and predictable, and disappointed contractors can fuel conflict on the platform for the marketplace provider. A further risk for the marketplace is that the customer and contractor avoid the intermediary and establish a direct relationship.