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.