AM, also known as 3D printing, can play an important role in the pursuit of performance improvement, innovation and growth.
“A pint’s a pound the world around. A gallon weighs eight pounds.” But what does it cost to fly it? Put three gallons on an airplane flying international routes, and the airline might tell you $440,000 per year.
Leading manufacturers in aerospace and other industries face a daunting challenge. To remain competitive, they must constantly look for ways to deliver superior value to their customers. Cutting costs and competing on price have their place, but who wouldn’t prefer delivering superior value with better products and competing on revenue? Truly innovative companies find a way to deliver both by breaking the trade-off between better and cheaper.
Understanding the Business Case
Advocates of additive manufacturing (AM)—also known as “3D printing”—view the technology as a potential contributor to companies’ quest for excellence. In the right context, they see the potential to meet or exceed the direct-cost standards established by more traditional manufacturing methods, while simultaneously offering the opportunity to achieve superior supply-chain and product performance.
Many senior executives, operations managers and financial professionals find themselves trying to understand the business case for AM. This should begin with careful consideration of the direct costs that drive AM and traditional production economics and continue with an examination of some of the less direct factors that can add dramatic value for companies and their customers under the right circumstances.
Such exploration seems justified. Advancements in AM increasingly enable companies to move beyond the technology’s historic stronghold of rapid prototyping and into end-product manufacturing. For example, the relative share of AM use for end-product manufacturing is estimated to have grown from 19 percent in 2011 to 28.3 percent in 2012. That represents not just a significant share of the AM market, but also growth that exceeds the general (already fast-growing) rate for AM technology.
AM: Innovative Capabilities
Our analysis suggests that AM can offer truly innovative capabilities for companies, allowing them to simultaneously lower costs as well as differentiate themselves in their markets. These results also suggest that most currently available perspectives on the economics of AM reflect a clear “path I” bias, according to Deloitte’s AM strategic framework—see Figure 1.
Along path I, companies deploy AM without significantly changing their underlying business models. Of the studies we examined, all but one consider AM as a direct replacement for an identical product manufactured using more traditional methods—in most cases, plastic injection molding. However, this bias belies AM’s well-documented ability to shift a company’s business model, either by allowing it to leverage improvements in minimum efficient scale to restructure a supply chain (for example, by producing closer to demand) or by activating the superior scope economies offered by AM approaches to create innovative product designs.
Understanding AM Paths and Value
AM’s roots go back nearly three decades. Its importance is derived from the ability to break existing performance trade-offs in two fundamental ways. First, AM reduces the capital required to achieve economies of scale. Second, it increases flexibility and reduces the capital required to achieve scope.
Capital versus scale: Considerations of minimum efficient scale can shape supply chains. AM has the potential to reduce the capital required to reach minimum efficient scale for production, thus lowering the manufacturing barriers to entry for a given location.
Capital versus scope: Economies of scope influence how and what products can be made. The flexibility of AM facilitates an increase in the variety of products a unit of capital can produce, reducing the costs associated with production changeovers and customization, and thus, the overall amount of required capital.
Changing the capital-versus-scale relationship has the potential to impact how supply chains are configured, and changing the capital-versus-scope relationship has the potential to impact product designs. These impacts present companies with choices on how to deploy AM across their businesses. Companies pursuing AM capabilities choose between divergent paths:
- Path I: Companies do not seek radical alterations in either supply chains or products, but may explore AM technologies to improve value delivery for current products within existing supply chains.
- Path II: Companies take advantage of scale economics offered by AM as a potential enabler of supply chain transformation for the products they offer.
- Path III: Companies take advantage of the scope economics offered by AM technologies to achieve new levels of performance or innovation in the products they offer.
- Path IV: Companies alter both supply chains and products in pursuit of new business models.
Time is of the Essence
Product life cycles are decreasing, while design cycles are accelerating. Therefore, performance trade-offs related to speed over different segments of the business cycle are worth considering as part of the overall AM business case.
Economic studies of AM rarely focus on the production speed of the technology relative to more traditional methods. However, the issue is routinely cited by managers as important to their consideration of AM as a production technology. AM can be perceived as slow, particularly in the case of single-object builds. Evidence suggests these perceptions may be valid. For example, one investigation analyzed the production of 85 assorted components out of stainless steel using a direct metal laser sintering (DMLS) process. After optimizing build volume using a packing algorithm, researchers were able to produce the basket of objects in approximately 108 hours—or 76 minutes per part.
Managers need to consider their own contexts when determining whether such processing times are acceptable. In making that judgment, managers should remember that the resulting parts are produced to “near net shape” in a single process, and that all steps related to casting, machining and other equivalent processing (including delays between steps) for more traditional approaches should be considered. Managers should also think about the precise role production speed must play in the production sequence, and how to balance production speed with delivery speed and other potential benefits.
Speed is important for delivery as well as production. Given shorter product life cycles and increasing global competition, speed to market and prompt delivery may be crucial determinants of customer value. Where traditional production methods may require centralized or even offshore production (with transit times stretching into weeks or months), the ability to take advantage of superior scale economics may position AM-enabled manufacturers to respond more quickly to customer demand.
For example, the elimination of tooling can substantially reduce time to market by eliminating delay while the tooling itself is created. Time to market may also be accelerated through faster design iteration. Where individual customization is required, savings of up to 85 percent in logistical steps and energy consumption have been documented. Market responsiveness may also be improved through accelerated product modification and changeover, due to reductions in tooling use. In addition to improved responsiveness and cost savings, market risk may be reduced where an improved ability to make minor product adjustments results in greater market acceptance.
Creating Value: Designing for AM
Venturing beyond path I in our AM framework also means taking advantage of the inherent scope and flexibility of the AM technology set. A simple “apples-to-apples” comparison on part design may be inappropriate. Studies that allow for the possibility of component redesign offer evidence of significant value delivery.
For example, in aerospace applications, industry executives claim the ability to leverage AM can reduce component weight by 30 to 55 percent and eliminate up to 90 percent of material used. In a specific example, one airline manufacturer redesigned a generic bracket to make use of AM capabilities. The resulting component was estimated to save 22 pounds per aircraft. For reference, in 2008, Northwest Airlines estimated that a 25-pound reduction in the weight of an airplane on international routes was worth approximately $440,000 per year in cost savings. Importantly, AM components in these applications are qualified as performing as well as their traditionally manufactured counterparts.
A Few Key Dynamics
AM offers companies an opportunity to innovate within their production environment. Managers should consider seven dynamics as they evaluate the business case for AM:
- Begin with a focus on relatively small, complex, plastic components. It is in this realm of production that the most substantial evidence exists that cost-efficient production using AM can supplant more traditional manufacturing methods.
- Remain open to applications for larger and metallic components. This is particularly true for applications that, using traditional manufacturing methods, use high-cost materials, involve high buy-to-fly ratios, or involve high levels of machining.
- Tooling is fundamental and may shift the calculus toward AM due to its expense, flexibility and impact on time to market. Even if traditional tooling is justified for large production runs, it may be feasible to deploy AM technology for either product introduction or product support, allowing tooling to be recycled or discarded rather than tracked and stored.
- Watch materials costs. Consider business cases in which material costs can be dramatically reduced. In particular, evaluate circumstances where vendor-supplied materials may be required and where they may not.
- Develop a clear picture of the financial implications of new technology investment. Machine costs dominate the direct-cost model for AM. Seek advice on depreciation and tax incentives.
- Adopt a broad perspective on time. Before deciding AM is “slow,” consider the full production cycle involved in traditional methods, including latency between production steps. Also consider time to market and delivery lead times as a crucial part of the value proposition.
- Aggressively pursue product innovation based on AM flexibility. Talented designers may find ways to redesign components to reduce material used while maintaining or improving product performance. Redesign can help offset typically higher AM raw material costs and add substantial life-cycle value for customers.
AM is not a panacea. There is no reason to view it as a universal replacement for traditional manufacturing methods. However, there is an important role for these technologies in the constellation of manufacturing methods that managers can deploy in pursuit of performance improvement, innovation and growth. iBi
Mark Cotteleer is a research director with Deloitte Services LP. This is an excerpt of his article, “3D Opportunity for Production: Additive Manufacturing Makes Its (Business) Case,” originally published by Deloitte University Press. Find the original article at dupress.com/articles/additive-manufacturing-business-case.