Temu’s Next-Gen Manufacturing Explains Why Its Products Are So Affordable
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Originally Posted On: https://gritdaily.com/next-gen-manufacturing-is-why-temu-products-are-so-affordable/
Next-Gen Manufacturing (NGM) model is responsible for the e-commerce platform’s ability to deliver cost savings of up to 50% compared to traditional processes. This model also explains how Temu can offer lower prices than its competitors.
Temu is a Boston-based e-commerce platform quickly gaining a reputation for offering affordable, high-quality merchandise. Launched in September 2022, it has become one of the most popular online shopping platforms and is available in the US, Canada, Australia, and New Zealand.
What Is Temu
Temu is an online marketplace that connects independent third-party sellers from around the world to consumers. It is a subsidiary of PDD Holdings Inc., a multinational commerce group with offices in the US, Ireland, China, and Singapore. Temu leverages the vast network of over 11 million merchants available through PDD Holdings to offer a wide array of merchandise at affordable prices.
Temu’s motto is “Team Up, Price Down,” reflecting the platform’s goal of providing cost savings to consumers through economies of scale. Temu is dedicated to empowering consumers to realize their aspirations by offering access to high-quality products at affordable prices.
In addition to its commitment to affordability, Temu upholds core values of integrity and social responsibility. The company works exclusively with brands, manufacturers, and sellers who share the same values and strictly vets their third-party sellers. This has resulted in positive ratings on review sites such as Sitejabber and an A- rating from the Better Business Bureau.
Temu is part of the new wave of e-commerce platforms that are challenging traditional retail models by doing more than just streamlining supply chains. They are also improving demand forecasting and shortening product development cycles by leveraging consumer preferences. By taking a unique approach to sourcing and manufacturing, Temu has quickly expanded its user base and earned a loyal following.
What Is Next-Gen Manufacturing?
Temu’s Next-Gen Manufacturing (NGM) improves the process from designing the product to delivering it to the customer. Temu uses PDD Holdings’ network of suppliers and partners worldwide and gathers information on what customers want to share with manufacturers and merchants. This helps to make production more efficient, reduce waste and risk of excess inventory, and decrease marketing costs.
E-commerce and offline retailers such as Walmart and Amazon have optimized their supply chain processes to reduce costs and offer affordable prices to consumers. Walmart pioneered the use of technology to streamline the fulfillment process and share data with vendors to replenish inventory, while Amazon created Fulfillment Centers and a delivery fleet to facilitate timely delivery.
However, these systems only start after products are made, leading to the question of whether further streamlining is possible.
How Can Temu Get Its Prices So Low?
Temu is able to offer significantly lower prices than its peers by leveraging its Next-Gen Manufacturing (NGM) program. Unlike traditional retail models that start with product production, Temu starts at the product development stage and extends optimization to last-mile delivery. By doing so, the NGM program reduces costs by up to 50% compared to conventional systems, resulting in cheaper, customized products for consumers. These cost savings are then passed on to the consumer, enabling Temu to offer more affordable prices than its competitors.
By sharing insights into consumer preferences and shopping behaviors, Temu cuts down on guesswork pre-production, reduces waste, eliminates inventory risk, and lowers marketing costs. As quantity is better predicted, warehouses can be much smaller, and products can be shipped immediately from factory lines to sorting facilities for timely delivery. This process offers a more direct, predictable, and transparent process from design to delivery, making Temu’s prices much lower than its peers.
How Does Temu’s Next-Gen Manufacturing Work?
Next-Gen Manufacturing restructures the manufacturing process to begin with consumer demand, which informs what manufacturers produce. This reverses the traditional business model of “produce first, sell later.” In the traditional model, manufacturers rely on intermediaries, such as department stores, to sell their goods to consumers.
These same intermediaries stand between producer and buyer, such that buyer feedback is delayed as it makes its way through the intermediary to the brand owner or manufacturer. This gap between what manufacturers understand of the market and what consumers want at that very moment often results in unnecessary guesswork and imprecision in forecasting demand. Very often, this leads to overproduction or undersupply as producers misjudge the level of demand, resulting in either glut or shortages, with a corresponding impact on pricing and inventory.
Temu’s NGM Helps Manufacturers Better Understand Customers
In contrast, with Next-Gen Manufacturing, Temu gives continuous real-time feedback to its merchants for free, feedback that goes deeper and more granular than conventional consumer surveys and market research. As more consumers come to Temu to shop, they will help upstream manufacturers to understand them better and tailor their products to the needs of a particular group at the best prices.
NGM also provides merchants with more visibility into buyer behavior and can predict with much higher certainty the level of demand for a certain product, such that manufacturers can plan production with more certainty. There is less waste in procuring raw materials, and the turnaround time is much shorter.
The better prediction of quantity also has the positive knock-on effect of reducing inventory risk. Manufacturers have less to worry about being stuck with merchandise that they cannot sell because they can more accurately forecast demand.NGM thus frees up capital by reducing the risks of overproduction, unnecessary warehousing, and inventory costs.
Temu’s NGM Reduces Marketing Push With Tailor-Made Products
That’s not all. Less is required to spend on marketing products that consumers already want. Consumers buy what they need, and the products are made for their customers.
Next-Gen Manufacturing can also benefit consumers by providing more customized products, faster delivery, and potentially lower costs. More targeted manufacturing according to consumer needs can help manufacturers reduce costs associated with waste and unsold merchandise, which leads to lower prices for consumers.
Temu’s NGM Streamlines Post-Production Logistics
The optimization continues even after the product is made in the factory. As sales quantity can be better modeled, products can be shipped immediately from factory lines to sorting facilities for 1-2 days before it’s shipped out to consumers. Manufacturers and merchants no longer need to hold as much stock, and warehouses can be much smaller.
Given the speed at which consumer preferences change within a season, Next-Gen Manufacturing is helping to build a more direct, predictable, and transparent process that represents a significant shift in the relationship between consumers and manufacturers. It also provides new opportunities for innovation and efficiency in the production and distribution of goods. It also puts the initiative in the hands of the consumer, who, for the first time, can initiate and realistically telegraph their needs and wants to manufacturers and have them fulfill them, much like made-to-measure manufacturing at scale.
Temu’s NGM Promotes Inclusion, Diversity, and Empowerment
Next-Gen Manufacturing is more than just a business model that streamlines the manufacturing process and improves demand forecasting. It also promotes inclusion, diversity, and empowerment.
With the direct communication between manufacturers and consumers that Next-Gen Manufacturing allows, manufacturers are better able to identify and cater to the unique needs and preferences of different demographics. This leads to more diverse and inclusive product offerings that cater to a wider range of consumers, including those who have traditionally been marginalized or underserved in the retail market.
In addition, Next-Gen Manufacturing can help reduce waste and improve sustainability, which is an increasingly important consideration for consumers. By producing goods more efficiently and in response to actual demand, manufacturers can reduce the amount of unsold inventory that ends up in landfills. The precision in matching consumer demand and supply also promotes mindful consumption.
Next-Gen Manufacturing has the potential to transform the retail industry by promoting inclusion, diversity, and empowerment while also improving efficiency and sustainability. As the retail market continues to evolve and consumers demand more personalized, affordable, and sustainable products, Next-Gen Manufacturing is likely to become an increasingly important part of the industry’s future.
Temu’s Next-Gen Manufacturing is disrupting the retail industry by prioritizing consumers and promoting inclusion, diversity, and empowerment. Through its unique approach, Temu has been able to achieve a balance between quality and low prices, thanks to its focus on improving demand forecasting and helping manufacturers produce merchandise that consumers want.
By using digital technology and e-commerce platforms, Temu allows manufacturers to communicate directly with consumers, leading to more efficient production, reduced waste, and improved sustainability. As the retail market continues to evolve, Next-Gen Manufacturing is poised to become an increasingly important part of the industry’s future, paving the way for a more diverse, sustainable, and customer-centric retail landscape.