January 05, 2015 by Josh Noble
3D printing at home may still be a novelty, but additive manufacturing (AM), the more formal term for industrial 3D printing (3DP), promises shortened supply chains for durable goods manufacturers. By cutting reliance on workforce, manufacturers can bring production closer to the end-customer, and remove a good portion of their logistics chain. As the price, speed, and availability of industrial 3D printing improves, companies that heavily rely on long-distance transportation of durable goods are about to face a disruptive new reality.
In today’s discrete manufacturing ecosystem, humans and machines work in tandem to cut, drill, mold, and assemble an unending variety of parts. Finished goods are pushed out to distribution through warehouses, stored, and sent to customers as needed. Generally, made-to-stock is far more prevalent than made-to-order.
Manufacturing locations are commonly determined by the lowest cost of raw materials, labor, facilities, freight, taxes, and insurance. Factors such as quality, fulfillment reliability, production time, delivery time, and public image are balanced against price incentives to narrow the field of potential manufacturing locations.
Advanced logistics have allowed manufacturers to trade local labor for outsourced production. Remote inventory tracking, fully-integrated logistics services, port automation, and a complex web of cargo carriers have made the world a smaller place. As long as the total landed cost for outsourced manufacturing outweighs the price of local production, and fulfillment lead times remain reasonable, then finished goods will continue to be shipped half way around the globe. However, 3D printing is about to destroy this traditional logic.
As the cost of outsourced labor and oil continues to increase, and the price of 3D printing decreases, remote regions lose their seduction of total landed cost. Without a significant price advantage, manufacturers are not going to pay for overseas production when they can improve service levels, reduce logistics cost, and increase flexibility by establishing additive manufacturing facilities closer to the customer.
High-volume manufacturers that can tolerate a low frequency of customization, long lead-times, and larger inventory stockpiles for bulk discounts are the exception, and will stick with low-cost global production hubs for the foreseeable future. However, manufacturers that need lean inventory, short lead-times, the ability to quickly respond to market changes, and a greater degree of customization are going to use 3DP to bring their production home. In an analysis of the global aerospace industry’s MRO parts market, PwC estimates a $3.4B annual savings in material & transportation costs alone if 50% of the industry’s MRO parts are 3D printed, and over $1B savings if just 20% are 3D printed.
Instead of transporting finished goods across the world, industrial manufacturers will establish regional 3D printing hubs that require minimal labor, and result in faster turnaround on production runs. By localizing 3D printing facilities in high-demand regions, manufacturers can avoid taxes, shipping expense, customs delays, and holding costs. Through this regional 3D printing model, inventory is produced as needed by the end-customer, instead of resting idle in a warehouse.
Demand and supply collaboration between buyers and suppliers will become even more critical with narrower margins between orders and deliveries. Real time visibility into available inventory, manufacturing disruptions and shipping times will be key to ensuring a lean manufacturing chain, even a local one, meets the expectations for customer service and satisfaction.
Check out Josh’s previous 3D Printing blog post “How Does 3D Printing Fit into Your Mid-Market Supply Chain?”
This is not a distant concept – at the current rate of improvement, additive manufacturing will be commonplace within five years. According to Morgan Stanley, “AM industry growth over the last 25 years has been 25.4%, and 27.4 % in the last three years”. Forecasts for 3D printing vary by firm, but Canalys estimates the market for 3DP products and services will increase from $2.5B in 2013 to $16.2B by 2018, Wohlers estimates conservative growth to $10.8B by 2020, and Morgan Stanley predicts a bullish $21.3B by 2020. While these growth estimates are all over the map, the predictions of massive growth seem to be uncontested.
Rapid improvements in printer prices and speed will drive this growth and change the landscape of traditional manufacturing. By taking advantage of more localized production, companies will be able to decrease total landed costs, increase speed of delivery, reduce the reliance on skilled laborers, and funnel resources into design improvements, becoming increasingly competitive in this changing market.