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3D Printing – Transforming The Supply Chain: Part 1

There is a great deal of buzz around 3D printing (also known as 3D manufacturing or additive manufacturing in its broader terms) in todays tech press. 3D manufacturing’s increasing prominence is underscored by President Obamas inaugural speech early this year in which he cited it as a key enabler of Americans future competitive advantage. Today, we frequently see vignettes in the news about how 3D printing will put manufacturing and custom product design in the hands of the consumer.  Some people see this as simply a hopeful vision for the future. Instead, 3D manufacturing has the very real potential to completely change the way we think of supply chain, service operations and retail distribution. According to Paul Brody, Vice President & Global Industry Leader of Electronics at IBM, 3D printing can unleash tremendous business value, especially when considered in conjunction with advanced robotics and a collaborative, connected supply chain.

The consumer electronics industry is a great testbed to explore the transformative impact of 3D manufacturing on the supply chain as we know it today. Many of the challenges in the consumer electronics industry are ideal opportunities for this technology to create value for first movers and the eventual leaders. Consumer electronics companies see ever increasing margin pressures due to the progressive commoditization of the device. Todays winning electronics companies are able to source and assemble their products in economic regions that present the lowest labor costs, and execute with operational excellence based on the traditional manufacturing and supply chain model. However, the current supply chain is structurally bloated with lead times, costs and risks. Exogenous factors such as the increasing cost of transport due to rising cost of oil, and tightening trade policies in target markets are increasing the cost of delivering products to consumers. As expected, this consequently squeezes margins and profits across industry even further.

In order to understand the potential value of 3D printing, we need to challenge the “traditional” supply chain and distribution models. We will do this by comparing the “traditional” model with a Digital Supply Chain model that leverages 3D printing and connected collaboration. The concept of Digital Supply Chain further considers the fast evolving and maturing trends of advanced robotics for shop floor automation, and open source hardware for the low cost shop floor of tomorrow.

The typical consumer electronics company sits on a portfolio of suppliers that provides finished components delivered to a point of manufacture/assembly of a company’s product. Once the product is manufactured it is then distributed through a network of regional and local distribution centers to get the company’s products to their points of sale or purchase.

DSC-Manuf-Trad

The key challenge for electronics companies is to optimize supply and demand to minimize inventory costs (cost of carry) while optimizing revenue by making product available anytime and anywhere it is demanded. The lower the amount of inventory held, in general, the better for the balance sheet and cash flow.  This challenge has become increasingly difficult for electronics companies. In an effort to preserve margins theyve potentially increased other costs and risks including lead-time, transportation costs, quality challenges, and geopolitical risk to the supply chain equation.  As labor rates in China and India continue to rise, the benefits of offshore sourcing and manufacturing are diminishing.

3D Printing & The Digital Supply Chain

The Digital Supply Chain has the potential to transform the supply chain dynamic that consumer electronics companies deal with today by reducing or eliminating the labor arbitrage consideration for sourcing and manufacturing, which have added lead time, cost and risk to the supply chain.

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In the Digital Supply Chain model, there are three key elements that drive the benefits case:

1.  Locally based 3D manufacturing – provides economy of scope with its ability to fabricate a wide range of parts,

2.  Advanced Robotics – provides labor-less assembly using smart, learning robots that can perform human tasks,

3.  Open source electronics – provides a programmable, open source electronic components (Arduino, Netduino).

In the Digital Supply Chain, the supplier is no longer providing finished goods, rather raw materials that will be distributed to manufacturing sites equipped with 3D printers that will produce parts on demand to be used in product assembly. By alleviating the cost of carry pressure characteristic of the “traditional” supply chain model, companies will be able to decentralize their manufacturing and supply their distribution channels much closer to the point of sale. This change in the supply chain dynamic promises significant benefits.

The Benefit Potential of The Digital Supply Chain

The benefit hypothesis for the Digital Supply Chain suggests five key opportunities to reduce cost and risk associated with the “traditional” supply chain model.  Firstly, the potential for 3D printing to change the inventory mix from finished goods to raw materials can reduce the overall cost of carry throughout the supply chain. Raw materials pose a much lower inventory cost profile than finished goods. In addition, the cost of carrying parts purchased from a supplier as finished goods can be deferred by fabricating a part or component when and where it is demanded using a connected 3D printer.

Secondly, the Digital Supply Chain has the potential to take out a significant amount of transportation costs from the supply chain by eliminating the labor arbitrage consideration, importation and other costs — enabling companies to cost-effectively fabricate their own parts locally using locally sourced raw materials.  Consequently, 3D printing will reduce lead times associated with sourcing parts and components from disparate geographies, thereby reducing stock outs, which could impact revenue, and potentially eliminating safety stock requirements and associated inventory costs.

Thirdly, manufacturing sites equipped with low-cost advanced assembly robots can reduce equipment and labor cost while reducing the cost of human error in the manufacturing process. Locally fabricated components can be assembled into finished products with little human involvement. Additionally, automated manufacturing will allow companies to improve time-to-market by reducing assembly and order-to-delivery cycle times.

A fourth benefit of 3D manufacturing is economies of scope, which consequently enables companies to realize economies of scale in customizing parts.  3D printers are able to fabricate custom parts within functional bounds; as a result, reducing cycle times and cost of retooling equipment on the shop floor, and providing production agility. Companies no longer need to depend on standard parts to gain economies of scale. The ability to use custom parts in a financially competitive way allows a company’s product engineering team to build products that are not constrained by economics resulting in the ability to create more bespoke designs.

Finally, companies can leverage the additive fabrication benefits of 3D manufacturing to reduce the cost and waste associated with scrap. 3D printers fabricate objects by creating successive layers of the object based on a digital model. The volume of material used is the volume of material that goes into the fabrication of the object. As a result, additive fabrication using 3D printing results in zero scrap. The elimination of scrap also has significant environmental benefits that can help a company improve the sustainability of its manufacturing operations.

DSC-Manuf-BenefitCase

Now that we have a qualitative sense of how Digital Supply Chain can benefit the supply chain as we know it today, the question remains – how do we structure our thinking around the potential benefits of Digital Supply Chain? The benefit hypothesis diagram above provides a comparison of a “traditional” supply chain cost structure for manufacturing with a hypothetical Digital Supply Chain cost structure.  The hypothetical net benefit of a Digital Supply Chain comes from the reduction in four cost categories: cost of distribution, cost of assembly, cost of carry (inventory cost), and cost of components (supplier overhead). Though the benefits case model is simple, it should give all of us a sense of how to view the value of 3D printing and its potential to transform the supply chain of today into the Digital Supply Chain of tomorrow.

In closing, Digital Supply Chain is a vision that has promise. It positions 3D printing technology at the leading edge of business transformation. The hypothetical benefits of Digital Supply Chain and 3D manufacturing have the potential to transform the way we think of manufacturing, distribution, and ultimately, business. In my upcoming blog posts, we will explore the Digital Supply Chain benefit cases for service operations and retail.  We will then close out this blog series by discussing the current maturity and constraints of Digital Supply Chain-enabling technologies, and the key considerations in becoming a Digital Supply Chain first mover.

For an overview of IBMs vision for the Digital Supply Chain and 3D printing, check out the presentation entitled The Software Defined Supply Chain delivered by Paul Brody, Vice President & Global Industry Leader of Electronics at IBM at the Siemens PLM Innovation Conference in March of 2013.

Also, stay tuned for the Institute for Business Value study on Digital Supply Chain coming in June for exciting insight into how 3D printing is transforming the way companies think of supply chain in the electronics industry.

Read part two of my series on 3D Printing – Transforming The Supply Chain.

By: Leonard Lee

Date: 4/13/2013

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