INDUSTRY INSIGHTS

Conscious Decisions

The rise of conscious consumers have changed the way people shop. But what will it take for responsible small-batch manufacturers to meet their demands?

Conscious Decisions

Over the past year and a half, the COVID-19 pandemic has had a mixed effect on consumption. Some categories and distribution channels for “essential goods and services”—from food and mass retail to e-commerce and online services—have enjoyed record growth; while “non-essential” products, like fashion retail or the creative manufacturing and handmade (CMH) sector, saw much of their business grind to a standstill. Now, as we begin to emerge from the pandemic, a vital question for those of us in the industry remains: How do we reframe CMH business models to ensure supply chains are more resilient, growth is more inclusive, and the makers of these unique and often sustainable products are rewarded more directly?

As a recent report suggests, with more than $500 billion in annual revenue last year, the global CMH sector is set to grow by 20 percent per year reaching $1 trillion by 2024. This would be a boon to the artisans who make up much of the CMH workforce. They are among the world’s poorest and most vulnerable workers. But in order for the CMH sector to reach its potential, new approaches to everything from managing production to financing will be key.

The survey was produced with several partners who all share the same goal: to bring to the mainstream the talent and creativity of millions of artisan entrepreneurs worldwide. The CMH sector is the second largest employer (after agriculture) in developing countries, but it’s the least funded. Its top five reported challenges are access to finance (60%), access to markets (59%), social media marketing (37%), merchandizing (36%) and marketing material (34%).

Challenges and solutions
New technology platforms will be critical for supporting CMH businesses. However, many platforms are not optimized to the unique needs of small-batch makers. This is where Powered by People is focusing its efforts, offering makers access to markets, financing and digital production management tools. The PBP platform was developed from wide-ranging, shared experiences across the CMH sector.
PBP identified three major opportunities for where technology platforms must improve to better support CMH workers and inclusive growth. Platforms built with these pillars can take advantage of untapped opportunities, including high connectivity and smartphone penetration, a skilled and under-utilized workforce coupled with the demand of an increasingly conscious consumer.

Demographics
Who makes up the creative manufacturing and handmade sector?

Opportunity 1: Production Management
Robust manufacturing software has typically been reserved for factory-based mass production. It’s expensive, complex and doesn’t support a distributed workforce. But PBP’s production-management software, Produce, is designed for CMH. It digitizes small-batch producers, and enables them, with the use of a smart phone, to better plan, optimize and scale their businesses. It represents a big step forward in helping the sector to compete internationally.
With this tool in place, platforms can connect CMH enterprises to networks of home-based workers, putting makers in control of their supply chain with transparency. PBP co-founder Ella Peinovich proved this in her previous technology-driven business, where she took advantage of high rates of mobile-phone use across Kenya to develop a mobile-first application for “virtual factories,” connecting 2,500 jewelry makers across Nairobi who completed just-in-time production runs of 50,000 units per month. She then created a jewelry brand to complement this effective production model. Such decentralized production processes translate to low overhead costs, allowing artisans to retain an unprecedented 25 to 35 percent of final revenue. For CMH makers, this can mean consistent work, a four-fold increase in average income within the first three months and the ability to get paid directly via mobile wallets. This novel technology demonstrates a greater opportunity for the CMH sector at scale.

Opportunity 2: Access to Online Wholesale Markets
Retail buyers are increasingly sourcing mostly factory-made product through virtual trade shows and a proliferation of online wholesale platforms. High minimum order quantities, however, lead to endless cycles and increasing pressure on price and margin, which increasingly drive the decision-making process for buyers. CMH makers, on the other hand, provide such flexibility—but only if they are able to access international markets and online channels that present them as viable to mainstream buyers.
The Powered by People Wholesale B2B platform features modern handmade products with compelling provenance stories to support a more direct, equitable and transparent value chain connecting buyer and maker. Platform solutions dedicated to take small-batch producers mainstream address challenges now visible across the consumption landscape by enabling buyers to choose from a wider variety of unique products from ethical, sustainably-minded brands.

Opportunity 3: Financing Solutions
More recently, we have seen the rise of brands driven by social impact and new direct-to-consumer models that are often enabled by technology and increased digital connectivity. The previous e-commerce business of PBP co-founder Hedvig Alexander showed that once there is demand for new CMH products, innovative financing solutions for producers are needed to bridge the gap between upfront material and labor costs and traditional buyer payment terms.
Financing platforms customized to CMH workers can help overcome these challenges. Platforms centered on cash advances can deliver more flexible payment terms. They can also help makers manage cash flow and build credit ratings and new forms of collateral.
Sectors such as fair-trade coffee, chocolate and spice have already benefited from such blended financing models, which use private, public and philanthropic lending to maintain cash flow while driving impact and sustainability. Unlike the commodities that dominate the agri-food sector, CMH products have, to date, not been a focus of attention for financial institutions that remain ill-equipped to serve the distributed nature of the sector with its variable demand cycles and irregular capital expenses.

Looking ahead
With a distributed workforce of more than 300 million producers worldwide now connected to the internet, the CMH sector is an untapped reservoir of creativity with virtually unlimited scope for growth. CMH makers provide unique products and breadth of selection without the need to buy into deep minimums or invest in the costly retooling of factory-made goods. New initiatives will not shift the sector on their own, however.
The rise of the conscious consumer depends on a new breed of conscious buyer. Certain consumer retail companies are paving the way, including IKEA and Williams-Sonoma, Inc., both of which now have fair-trade initiatives targeting the CMH sector. These businesses recognize that CMH offers economic opportunity and supply-chain diversification while featuring unique products with a rich narrative that is often intrinsically more sustainable.
These companies have seen what PBP co-founder Alison Phillips has witnessed over her career creating brands and designing consumer products for global technology and retail companies. The pursuit of lower prices and higher volumes have had dramatic knock-on effects on economies and the environment, driving product obsolescence and a culture of overconsumption.
The time is ripe for high-level public and private stakeholders to work in partnership to pledge significant support and invest in the sector’s future. By acting now, business and society can bring CMH into the mainstream to drive inclusive growth and the advancement of responsible consumption and production.

An original version of this article first appeared in the World Economic Forum.

More from Crafted