Economic aspects of Additive Manufacturing

Dubbed the 3rd industrial revolution, additive manufacturing (AM) has the potential to revolutionise manufacturing and economic markets. To analyse AM technologies from an economic perspective, let’s identify its key principles and discuss AM's effects on economic market structures.

‘Flexibility is not free' [1]

Increasing the flexibility of a manufacturing process offers no value when the continuous demand of uniform products is sufficient. 

That’s why it’s critical to identify the benefits of AM and the applications for which they are best suited in order to create substantial additional value for producers and customers alike. 

Technological opportunities and limitations of AM. [2]

Most value can arise from:

1. Rapid prototyping: rapid product development  lowers development costs, shortens time to market and reduces capital intensity;
2. Rapid manufacturing: new dimensions of flexibility deliver highly customized products at no cost penalties and even with little manual assembly work.

Four key principles of AM capture its opportunities for manufacturing [2]:

1.    Universal manufacturing machine can directly transform a digital 3D model into a physical product
2.    Customization and flexibility are free – no tools or molds are required while product designs and volumes can be altered without incurring cost penalties in manufacturing
3.    Complexity is free because additional design complexity and product variety do not incur additional costs in manufacturing
4.    Assembly efforts are potentially reduced when producing functionally integrated products with AM.

Economic opportunities and limitations of AM [2].

Based on these AM’s key principles, markets best suited for AM can be characterized by four patterns:

1.    Small production output
Typical for prototyping applications, it is also suited for many industrial components or especially spare parts for older product families still in use (collector items…)

2.    High product complexity
Typical for lightweight constructions in the aerospace or performance car industries (mesh structures provide equal performance effect and largely reduce material usage), it is also suited for product designs where conventional production technologies (casting, milling) can not provide complicated internal structures ( cooling chambers)

3.    High demand for product customization tailored to individual customers’ needs
Typical for many medical or dental applications (implants, prostheses), AM is also suited for consumer markets like jewelry or sport performance products.

4.    Spatially remote demand for products
AM would be suited for any decentralized production of replacement parts in the mining industry, on exploitation platforms of the oil industry or in the military.

Markets for AM are characterized by a higher degree of flexibility, leading to more product variants: this means strong economies of scope in product differentiation are possible within a market. A producer equipped with AM is capable of serving the entire market, once entered. As a result, markets provide greater product variety while consumers receive their most preferred goods.

Production principles with AM technology [2].

AM enables firms to serve multiple market segments mobility barriers across segments related to the technology investment become smaller. Manufacturing firms that increase their flexibility with AM are capable of serving fluctuating customer preferences while also strengthening their market dominance over time. 

Nonetheless, there are limitations. Capital costs for the acquisition of the technology and up-front investments for setting up production are still currently very high. Quality standards are still being investigated and decided and material technological constraints of AM technology may prevent firms from entering certain product markets. In addition, none of this would be possible without the technical and fundamental knowledge of experienced engineers and researchers.

To sum up

AM technology will continue to gain maturity and larger industry penetration [3]. Coordinated, cross-functional decisions along a company’s value chain are necessary to efficiently leverage AM as a new source of modern manufacturing. Beyond production management, AM has implications on adjacent research streams like innovation management, marketing, but also business policy and strategy.
Will the digitalisation of production and products be as disruptive as it was in the content industries (music, film, newspapers)? [4, 5, 6]

References
[1] Stigler, George (1939): Production and Distribution in the Short Run. Journal of Political Economy 47 (3), pp. 305–327.
[2] Christian Weller, Robin Kleer, Frank T. Piller, Economic Implications of 3D printing: Market structure Models in light of additive manufacturing Revisited, Int. J. Production Economics, http://dx.doi.org/10.1016/j.ijpe.2015.02.020
[3] Milgrom, Paul; Roberts, John (1990): The Economics of Modern Manufacturing: Technology, Strategy, and Organization. The American Economic Review 80 (3), pp. 511–528.
[4] Von Hippel, Eric (2005): Democratizing Innovation. Cambridge, MA: MIT Press.
[5] Kleer, Robin; Piller, Frank T. (2013): Modeling Benefits of Local Production by Users: Welfare Effects of Radical Innovation in Flexible Manufacturing Utilizing Additive Manufacturing and 3D Printing. Presented at the 73rd Annual Meeting of the Academy of Management 2013, Orlando, FL.
[6] de Jong, Jerom P.; de Bruijn, Eric (2013): Innovation lessons from 3-D printing. IT Sloan Management Review 54 (2), pp. 43-52.