3D Printing Disrupts Manufacturing: How Economies of One Create New Rules of Competition: 3D Printing May Represent a Disruption to the Manufacturing Industry as Profound as the Industrial Revolution

TL;DR: For example, at EuroMold 2012, 3D Systems used one of its 3D printers to print a hammer as discussed by the authors, which was shown to be much cheaper than the traditional design-build-deliver model.

Abstract: Before the Industrial Revolution, goods were produced by local artisans and craftsmen relying primarily on locally available materials and selling primarily to local customers. These artisans conceived of and then made products, and they sold these products in their own small shops or out of their homes. In this environment, the customer was directly linked to the producer; there was no middleman and no supply chain. The Industrial Revolution ushered in an era of innovation in production methods, mining methods, and machine tools that enabled mass production and allowed the replacement of labor with machines. In the past 200 years, the elements of production have been refined, but the underlying economics have remained: competitive advantage goes to the company or companies (organized into a supply chain) that can produce the highest quality part at the lowest cost. Fixed costs--infrastructure and machinery--became separate from variable costs--those expenditures that increased on a per-unit production basis, such as labor and materials. Economies-of-scale production models meant that high-volume production reduced the contribution of the fixed-cost portion of the cost equation, thus reducing the per-unit cost. Simply put, high throughput and efficiency yielded higher profits (Pine 1993). Today we are entering an era many believe will be as disruptive to the manufacturing sector as the Industrial Revolution was--the age of 3D printing (Koten 2013). At a EuroMold fair in November 2012, 3D Systems used one of its 3D printers to print a hammer. The Economist (2012) used this example to compare the traditional supply chain design-build-deliver model with the emerging 3D printing model: Ask a factory today to make you a single hammer to your own design and you will be presented with a bill for thousands of dollars. The makers would have to produce a mould, cast the head, machine it to a suitable finish, turn a wooden handle and then assemble the parts. To do that for one hammer would be prohibitively expensive. If you are producing thousands of hammers, each one of them would be much cheaper, thanks to economies of scale. For a 3D printer, though, economies of scale will matter much less. Its software can be endlessly tweaked and it can make just about anything. According to Richard D'Aveni (2013), "businesses all along the supply, manufacturing, and retailing chains [will need] to rethink their strategies and operations" (34). Indeed, the rise of 3D printing and additive manufacturing will replace the competitive dynamics of traditional economies-of-scale production with an economies-of-one production model, at least for some industries and products. In essence, future manufacturers will be governed by two sets of rules: economies of scale for interchangeable parts produced at high volumes, and economies of one for highly customizable products that can be built layer by layer. Each model brings its own economic factors and sources of competitive advantage (Table 1). The Competitive Dynamics of Economies of Scale Traditional manufacturing relies on a design-build-deliver model. In this model, roles and responsibilities of the various participants are well established. Designers translate customer needs into viable products. Producers own facilities that emphasize efficiency and low-cost production. In the past four decades, these producers have increasingly relied on a distributed and extended supply chain, sourcing the lowest-cost providers to build components and subassemblies on a global scale. The production methods employed by these manufacturers have relied heavily on subtractive manufacturing methods, which begin with a solid physical form that is ground, cut, drilled, milled, lathed, and otherwise has material removed from it to make the shapes needed to build components, subassemblies, and ultimately complete products. …