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Bringing Industry 4.0 to the hands of small manufacturers: Feasibility study for scaling up Katana smart workshop software

Periodic Reporting for period 1 - KATANA (Bringing Industry 4.0 to the hands of small manufacturers: Feasibility study for scaling up Katana smart workshop software)

Reporting period: 2019-02-01 to 2019-05-31

People all over the world are increasingly empowered to seek fulfilment in their lives by turning passions into daily jobs. Scalable sales channels like Etsy and Amazon help them do so. However, there are no tools that could help them grow their businesses efficiently: Excel spreadsheets do not scale, and the myriad of resource planning platforms are too expensive, overcrowded, and lack essential integrations to other business-critical platforms (e-commerce, accounting, etc).

At the same time, more and more companies are starting to sell their products directly to the consumer. They cut out the middlemen, like the classical brick and mortar resellers and wholesalers, and use scalable e-commerce platforms instead. This is called the direct-to-consumer revolution.

In any small manufacturing business that sells directly to consumers, processes like sales, production, inventory and purchasing are treated as a single unified flow. Modern direct-to-consumer business is not just manufacturing, but it is retail, distribution and production combined. This business flow is very different from traditional manufacturing, where products are made to stock and there is no direct communication between producers and buyers. This is why most large enterprises operate in silos, where different functions are usually split into separate departments. Direct-to-consumer businesses cannot operate in silos.

There are no software solutions on the market that could treat workshop management processes as a unified flow as the modern direct-to-consumer manufacturers need. After a business grows out from Excel sheets, the next step is usually enterprise resource planning (ERP) software. These are one-size-fits-all solutions focused on large enterprise needs, loaded with functionalities that are not needed by small businesses.

This problem pertains to 2+ million micro- and small-sized manufacturing enterprises in Europe; and around 250-500 000 in the US. The success of small entrepreneurs is fundamental for European economy, making Katana’s platform an enabler for driving forward the European competitiveness on a global scale.

Our overall objectives of the Phase 1 project were to validate the economic and technical viability of scaling Katana smart workshop platform globally and to prepare for a high-potential Phase 2 project. Our key objective was to work on improving our business model to address more complex segments, such as small-scale batch manufacturing, as well as wider potential customer base in general. From the technical point of view, the objective was to establish a detailed feature development roadmap, feeding into the product development and scaling strategy to be followed up in the Phase 2 project.
The work was divided into three parts:

1. Business model validation – we conducted market studies to fully validate our pricing model and to unlock new customer segments; and assessing the market potential for Katana in different target groups. We validated and refined our positioning in the emerging direct-to-consumer global ecosystem, and defined the product development needs that will make our platform more useful for small manufacturers pursuing a business strategy where they sell their products directly to consumers. This trend is highly beneficial for Katana's overall scaling potential, as our platform is the only one ideally suited for such clients. The outcome is a business plan and a go-to-market strategy to be followed up during the Phase 2 project.

2. IPR strategy development – we assessed the possibilities of patenting our unique software method that achieves a single-window view for all stages of workshop management process. We found that applying for any patents in a SaaS sector has an extremely low chance for success, even for innovative solutions like Katana. We have therefore decided not to apply for any patents as it’s a long-term and expensive process with a low likelihood of success.The intellectual property in the SaaS sector is protected through clauses in contracts with customers, employees, and service providers. With the help from our SME Instrument coach, we updated our customer privacy policy, employee contracts, and service agreements to include stronger protection of IP.

3. Technical feasibility study – the key activity was mapping out a detailed plan for which features we need to build for which users in order to unlock the scaling potential in different industry segments, how these features should be built it in practice, and in which order of priority. Based on the market studies and further validation to our business strategy, first we mapped out the key value proposition and capabilities that we want to offer to modern small manufacturers in the direct-to-consumer ecosystem, and thereafter specified further technical development feeds. The outcome is a development roadmap to be implemented within the Phase 2 project.
The overall result of the KATANA Phase 1 feasibility assessment is a confirmation to the business potential and technical feasibility of the proposed production and inventory management platform. Our approach is unique in the overall ERP/MRP industry. Katana is the only software for the modern manufacturer who sells online and makes products to customer orders. The key novelty of our approach is combining production and inventory management into a unified workflow, and enhancing it with data exchange with sales, shipping and accounting platforms that small manufacturers already use.

The direct-to-consumer revolution is just starting out. Our platform will help small manufacturers all over the world to benefit from this fundamental change in the retail industry.

Based on the favourable results obtained from the feasibility study, we will pursue the SME Instrument Phase 2 project. The core objective of the main innovation project is the final development of the platform, including introducing advanced machine learning based optimisation tools to further help our clients to drive down forecast errors and lost sales metrics, implementing new features that make the platform scalable for larger SMEs (up to 70-80 employees) and applicable for more complex industries (e.g. food and beverage, cosmetics, electronics, etc.), and building integrations to all the widely used e-commerce, shipping and accounting platforms. These developments make our platform uniquely scalable in the global direct-to-consumer ecosystem, and drive major value back to the European economy as we help small manufacturers to grow.
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