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STRATEGIC IMPLICATIONS OF ADDITIVE MANUFACTURING (AM) FOR TRADITIONAL INDUSTRY BUSINESS MODELS Professor Göran Roos Intellectual Capital Services Ltd London, United Kingdom, WC1H 9BQ Mark Fusco Manufacturing Focus Pty Ltd Cumberland Park, South Australia 5041
ABSTRACT The strategic implications of additive manufacturing (AM) technologies across industry are significant, yet at this time poorly understood. Described as the “Third Industrial Revolution” AM is creating a paradigm shift in today’s business models in relation to decision speed, adaptivity, agility, complexity and enmeshment of technologies with the associated implications for changing industry structure. This shift will only increase over time as the technology matures with costs reducing and speeds of production increasing. In order to maintain competitive advantage it will be critical for industry sectors to evaluate their business models in order to remain relevant. This paper will consider the many of the disruptions to be overcome by key industries, such as the tooling, casting and machining sectors, whether as part of their transformation or decline. INTRODUCTION Key enabling technologies are technology domains that are knowledge intensive and associated with high intensity research and development, rapid innovation cycles, high capital expenditure and highlyskilled employment. As well as underpinning most industrial activities across sectors, they also form industrial sectors in their own right. The key enabling technologies are generally considered to include information and communication technologies, macro and nano electronics, industrial biotechnology, photonics, advanced materials, nanotechnology and advanced manufacturing technologies. Advanced manufacturing technologies include the area of additive manufacturing (AM) as well, for example, robotics. Technological advances are particularly transformative in business. The emergence of a disruptive technology that replaces an existing industry platform has significant implications for incumbent firms as it allows a new population of consumers at the bottom end of a market access to a product or service that was historically only accessible to consumers with a lot of money or skill.1,2 Furthermore it sometimes enables the production of output with higher performance in one or more of a set of performance dimensions, and may also enable the production of an output not possible to previously produce. Industry after industry has been re-ordered as disruptive technologies have caused profit pools to move between owners of capital, labour and customers. More often than not incumbent businesses have lost out whilst start ups have become dominant players3. This implies a structural change in the value chains or eco-systems that are impacted by emerging technologies. When it comes to key enabling technologies, it also implies the emergence of a new industry or eco-system in its own right, i.e. the key enabling technology industry or in our case the AM eco-system.
Described as the Third (or Fourth) Industrial Revolution, the strategic and structural implications of AM technologies are considerable, yet they remain poorly understood. To fully leverage the value of this technology, or to survive the implementation of this technology somewhere in the existing value chain or eco-system, many of the participants in today’s value chains or eco-system need to change their business models. The challenge therefore is for firms to understand how to best leverage the technology in new business models alongside their existing models, whether as part of their transformation into new sectors or as an extension of their current service and product offerings. Disruptive technology can’t be imposed onto an existing business model as a replacement of, or as a complement to, existing technology in a business-as-usual approach. If this is done, the firm is unlikely to maximise the benefits and value the new technology can provide, and is at risk of becoming a victim of the structural change that the new technology will generate in the existing value chain or eco-system. This means that strategies that have served firms well will no longer succeed as the adoption of new business models leveraging the benefits of the emerging technology start to come on-line and as the structural change of the industry commences. Both the opportunities and challenges AM technology presents will change the way companies compete. It is imperative that manufacturers develop a granular understanding of these external forces and its influence on operations strategy to successfully compete4. “Navigating this disruption and embracing this new (AM) technology requires strategic foresight to profit and prosper over the next 10 to 20 years”5. Embedded economic concepts and structures that create value in current business models will be challenged. This is a complex challenge that is not limited to a specific sector, material or scale of production. AM changes not only how products are made and the materials that can be used but also how they are designed and distributed, thus its impact will be broad and extend beyond those enabled by the technical capabilities of the technology. The complex interactions that AM has across industries, value chains and eco-systems mean there will be no single, consistent impact. Rather, the impact will vary across businesses, industries and even countries.6 CURRENT STATE OF PLAY The last 30 years has seen the suite of AM technologies grow from rapid prototyping, tool and mold making, digital manufacturing and now personal fabrication (Figure 1). Personal Fabrication 20% AM by 2040 Digital Manufacture 30% AM by 2040
Tool and Mould Making 45% AM by 2040
Rapid Prototyping 50% AM by 2040
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Figure 1. AM adoption rates by application7. All of these AM applications are currently in play in various stages of adoption and maturity. Whilst interest in the technologies has raised awareness, the literature has seldom given serious consideration to the implications for existing business models and industry structures. Business model innovation rarely comes from incumbents. Therefore understanding how this technology can be leveraged and the
implications for new business models that may enter their markets is critical for incumbents in order to determine effective adoption or defensive strategies. In order to get an understanding of how rapidly AM technologies are being adopted, we refer to the Gartner Group’s Hype Cycle8 (Figure 2). Industry opinion suggests 3D printing is entering the ‘slope of enlightenment’ where methodologies and best practices are developing. Note however that this type of approach adopts a generic position for 3D printing that fails to take into account the idiosyncrasies of each AM technology. AM technologies are not homogenous and must be considered in many respects as individual technologies whose phases may be both overlapping and iterative. Furthermore, the link between hype and realised potential is not always clear; some ‘breakthroughs’ never actually materialise. That being said, ambiguity on timing should not be sufficient reason to delay planning.
Figure 2. Commercial 3D Printing is considered to be at the ‘Slope of Enlightenment’ on the Gartner Group Hype Cycle8 By the time AM is exerting its full influence it will be too late for companies to plan their response. Leaders need to make their own assessments based on a structured analysis involving multiple scenarios of technological advancement and potential impact3. It is imperative that companies understand now the opportunities and changes to current business models necessary for the business to remain relevant. Currently 3D printing technology is concentrated in a few countries with 41 per cent of all 3D printers in the United States, 10 per cent in Japan and nine per cent in Germany9. Each country has its own key area of operation (e.g. the United States has several strong companies in plastics, whilst European companies have a lead in areas like high-end direct metal machines). As articulated in Roos and Kennedy7, the estimated impact from additive manufacturing by 2025 is: • 60-80 per cent value increase per 3D-printed product and 35-60 per cent cost savings to consumers plus 10 per cent added value from customization from consumer use • 40-55 per cent cost savings to buyers of 3D-printed products from direct product manufacturing • 30 per cent production cost reduction using superior 3D-printed moulds from tools and mold manufacturing. Whilst AM provides a number of significant benefits when compared to traditional manufacturing (e.g. strength, ‘free’ complexity, light weight structures, less assembly through part integration and mass customisation of the design features), there currently exist a number of barriers to wholesale adoption, namely the speed of production; the cost of production; the limitations of mechanical properties; the surface finish, post part processing and the quality assurance and validation as well as standardisation on the software side. Although AM technologies will both replace and complement
conventional manufacturing methods in the medium term, this will only be possible once the limitations of the cost of equipment and materials and the ability to deliver high volume have been addressed. Progressively the cost of traditionally manufactured parts will be less competitive than that of additive manufacturing with many becoming more expensive. As patents for many of the established additive technologies start to expire over the next five to ten years, China and other low cost equipment producers will become strong low cost manufacturers of AM equipment. This could lead to a dramatic shift in the industry’s global distribution as it is currently a function of these patents. This shift in cost base will signal lower cost entry to the AM market, lifting accessibility and production economies of scale, further lowering the cost to enter this market. Machinery makers will further develop competitive advantages around the production of larger part size, speed of production and the integration of other complementary processes in order to compete. As a consequence overall costs of AM produced products will continue to fall as cycle time reduces lowering the capital overhead. As the demand for materials increases allowing more suppliers and economies of scale to produce, the overall material costs will also reduce. STRATEGIC IMPLICATIONS – MOLDS AND TOOLING The changes that will be brought by AM are not new to the Molds and Tooling industry. In the same way that the Internet democratized media and music markets, the dominance of incumbent manufacturers, particularly those of products with subpar or merely adequate designs, could be severely threatened by new companies taking advantage of AM technologies10. We have used Porter’s Five Forces model to articulate the potential and likely impacts on the Molds and Tooling Industry as a demonstration of the potential impact across an industry. Threat of new entrants Historically, the significant establishment costs (largely tool making equipment costs) have meant the threat of new players in the tooling market has been low. However the decreasing acquisition costs for professional 3D printers is democratising access to the means of production, lowering barriers to entry for start ups, particularly in niche market segments. These ‘micropreneurs’ may have their own plant or work purely as designers for highly flexible contract manufacturers located near their customers. Although these businesses will initially operate at low volumes they will gain insights into consumer tastes and build relationships that established companies could struggle to match. “Additive manufacturing thus is an equalizer between market incumbents and newcomers, allowing anyone with a new idea to produce the first prototype of a new product very inexpensively”7. New competitors will operate where consumers are willing to pay a premium for a bespoke design, complex geometry or rapid delivery. Over the longer term, however, they could transform industries in unexpected ways, moving the source of competitive advantage away from the ability to manufacture in high volumes at low cost toward other areas of the value chain, such as design or even the ownership of customer networks. The availability of open-source designs for 3-D printed firearms shows how such technologies have the potential to create ethical and regulatory dilemmas and to disrupt industries11. Application for space, travel, remote areas and the military will revolutionise ‘make on demand’ products and supply chains and there will be opportunities for smaller distributed, even mobile production facilities moving production to the point of demand12. Substitute products / services AM provides the ultimate in substitution, particularly for low volume products where customisation is highly valued. Creating molds and tools using traditional subtractive manufacturing methods is both time-intensive and costly. The introduction of AM however can significantly reduce cost whilst allowing faster delivery to market especially if located locally, as well as allowing for the cost effective production of low volume items7. Some businesses are already realising the benefits of utilising AM for short run production. Rather than waiting for weeks or months for tooling to be made for the part, the company uses an AM process to begin production. This allows them to dramatically reduce time to market and to get an early understanding of customer response to the product. A further benefit is the potential to find previously unknown faults, meaning changes to the tooling can be made prior to completion, saving time and money. This business case to leverage speed can be taken one
step further by using AM to build a ‘soft’ tool. When viewed holistically, time can directly impact value and the traditional cost base compared to traditional tooling methods. Soft tooling can be used while the normal tool is being built, generally for short production runs (
