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When Airbnb came on the scene in 2008, the hospitality industry was monolithic – dominated by large hotel chains that dictated both prices and lodging conditions. During high-demand periods, hotels would leverage their finite capacity in a given geographic area to keep prices high. And – as anyone who has ever attended a mega tradeshow understands well – capacity would almost never keep up with demand during peak periods. Adding capacity meant building more hotels, at significant time and expense.
Then two roommates had an idea: why not use existing local resources (empty rooms and beds in homes) to create greater lodging capacity when needed? The end result is more local capacity, resulting in better prices and accommodations for all. Basically, everyone wins (except the monoliths).
The manufacturing sector has long suffered from the same monolithic approach. Many large-scale industrial assembly facilities, for example, order their parts from suppliers. These suppliers produce the parts, then ship them – sometimes from the other side of the globe. Delivery times are at the mercy of production lag, stock management constraints or force majeure.
The end result is that large-scale production in a major assembly facility can literally be held up for the want of a single plastic or metal component. What’s more, increasingly production capacity requires new production facilities – which raises overall production and product costs, eats into narrow profit margins and can incur even greater shipping expenses.