How the creative manufacturing and handmade sector can craft a post-COVID-19 future

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Alison Phillips, Founding Partner and Chief of Design, Powered by People

• The COVID-19 pandemic brought many creative manufacturing and handmade businesses to a standstill;
• The sector’s workforce is one of the world’s largest, but also among the poorest and most vulnerable;
• Digitization and more direct connection to global supply chains can help the sector take advantage of post-COVID-19 growth opportunities.

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 – saw record growth; while “non-essential” products, like fashion retail or the creative manufacturing and handmade (CMH) sector, saw much of their business come to a standstill. The artisans that make up much of the CMH workforce are among the world’s poorest and most vulnerable workers. Many of their businesses are now challenged with inventory backlogs, cancelled orders and supply chain disruption. Heritage skills have already been erased by offshoring in recent decades and more could be under threat.

Still, as with many consumer goods market segments hard-hit by the pandemic, the overall long-term growth outlook for CMH is very positive. A recent report suggests, with more than $500 billion in annual revenue last year, the global CMH sector is set to grow by 20% per year reaching $1 trillion by 2024.

Yet retail buyers who source handmade goods still largely do so from assembly-line factories, while the sector more broadly is dominated by a distributed workforce of women, youth and rural populations. CMH is already the second-largest employer globally (after agriculture), but the sector has been chronically under-served by a lack of investment, digitization, access to business finance and global markets.

As we emerge from the pandemic, a vital question is now to 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. In this, new approaches to everything from managing production to financing will be key.

Challenges and solutions

New technology platforms can be critical for supporting CMH businesses. However, many platforms are not optimized to their unique needs, slowing economic growth. Software platform solution Powered by People (PBP) offers 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.

Opportunity 1: Production Management

Robust manufacturing software has typically been reserved for factory-based mass production. It is expensive, complex and does not support a distributed workforce. The opportunity for change is Production Management software designed for CMH that digitizes small batch producers, and enables them to better plan, optimize and scale their businesses is critical for the sector to compete internationally.

With this in place, platforms can connect CMH enterprises to networks of home-based workers, putting makers in control of their supply chain with transparency. Co-founder Ella Peinovich proved this in her previous 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 jewellery makers across Nairobi who completed just-in-time production runs of 50,000 units per month. She then created a fashion brand to complement this effective production model.

Such decentralized production processes have low overhead costs, allowing artisans to retain an unprecedented 25-35% 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 have become major drivers for buyers, a challenge I had experienced while working in the retail sector. CMH makers offers such flexibility, yet the sector has lacked access to international markets and online channels that present them as viable to mainstream buyers.

Wholesale B2B platforms featuring modern handmade products with compelling provenance stories, support a 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 labour costs and traditional buyer payment terms.

Financing platforms customized to CMH workers can help overcome these challenges. Platforms centred 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. https://www.facebook.com/plugins/video.php?href=facebook.com%2F7746841478%2Fvideos%2F461623804946770&width=640&show_text=false&appId=1085482764806408&height=360

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.

CMH now needs champions and change-makers across the retail, consumer, technology, logistics and financial industries. These champions can help bridge existing digital gaps and speed the adoption of innovative market-driven solutions. By facilitating the creation of effective and sustainable jobs for small and medium-sized enterprises CMH has the potential to be a driver for socio-economic equality by keeping a larger share of earnings in the hands of artisans.

For many of us, the pandemic has provided an opportunity to rethink what we buy and how much we consume, as well as to reward purpose-driven brands. A connected, distributed workforce has proven value. Yet even well-intentioned retail buyers still often overlook CMH enterprises. Closing the gap between intent and action will require a new model of consumption that reframes legacy buying processes, traditional compliance requirements and mindsets.

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 I have witnessed over my own my own 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 through organizations like the World Economic Forum and 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, while delivering on the SDGs by 2030.