3D printing has captured the imagination of the media and the financial markets; prognosticators are predicting a fundamental disruption in the manufacturing paradigm, from mass production to mass customization. Are we finally achieving the "lot size of one" that Taiichi Ohno envisioned when creating the Toyota Production System? Will factories disappear as the "maker movement" drives demand toward custom-designed items created on 3D printers in the home? How will these changes affect the industrial supply chains?
The answers are "yes," "no," and "profoundly...in certain cases." As with many other new technologies, forecasters overhype the changes while naysayers ignore the potential. Ultimately, we expect to see fundamental shifts in some supply chains but not others. To understand the phenomenon and evade the hysteria, we need only look at the history of a recent disruption: e-commerce. The potential of the Internet was initially overhyped, yet it has had profound-but not overwhelming-effects on most supply chains.
A Brief History of E-Commerce
During the 1990s, pundits proclaimed that the Internet was ushering in a “new economy” where many of the old rules no longer applied. The global, 24/7 reach of “virtual” Internet businesses coupled with network effects suggested a winner-take-all world where upstarts would displace incumbents by “capturing eyeballs.” The markets lit up as investors sought to pick the winners among the emerging “e-tailers.” When markets have faith, wonderful things happen…but when markets lose faith, awful things ensue. Speculation fueled the rapid ascent of the Nasdaq from 1,500 in October of 1998 to a high of more than 5,000, before crashing back to 1,500 in October of 2001. US$4 trillion in paper wealth was made and then lost in just three years. Early high-flying Internet retailers such as Pets.com and Webvan filed for bankruptcy when the venture capital–funded cash spigot dried up. Media attention swiftly shifted from acclaim to attack.
But despite the disastrous flameouts, no one denies the impact of the Internet on retailing. For example, online sales of computers, cameras, and mobile phones now account for 20 to 30 percent of total sales in Western countries. And over the past 20 years, Amazon has grown from an unknown startup narrowly focused on books to a $70 billion-plus behemoth with more U.S. distribution centers (DCs) than Walmart, the world’s largest retailer. Amazon’s supply chain can now reach more than 95 percent of U.S. homes with low-cost ground delivery in two days. Simply put, it’s a supply chain phenomenon, even discounting the buzz about delivery drones and predictive shipping. In the big picture, however, overall Internet sales account for a mere 6.4 percent of total U.S. retail sales, hardly profound despite 20 years of growth.
The key lesson from two decades of Internet retailing does not involve the prolific failures or the profound changes to the shopping experience, but rather the understanding of what drove the successes that did occur. And what, in turn, are the implications of this history for the potential disruption from 3D printing? Internet retailing succeeded where traditional supply chains were failing. Amazon initially targeted the book supply chain because traditional retailing struggled with the expansive and hit-driven nature of publishing. Although Borders created the model for bookstores tailored to a local customer base, a large Borders superstore held only 150,000 titles; Amazon could offer 2 million. Equally important, 30 percent of the books placed upon a Borders bookshelf were returned to the publisher unsold, while Amazon’s virtual shelves avoided the excessive returns, thereby lowering the cost even while expanding the selection. From there, Amazon spent 20 years expanding its selection and building scale to address its weakness: the delay between finding the desired object and taking it home. And now product categories such as grocery—not originally well suited to Internet sales—sit squarely in its sights, at least in large, tech-savvy metropolitan areas.
Similarly, 3D printing offers a way to address supply chain deficiencies through design customization and enhanced speed. Accordingly and not surprisingly, prototyping offers the most prevalent industrial use for 3D printing today. Today’s 3D printers, such as the Stratasys uPrint SE Plus, can produce a functioning prototype to evaluate the form, fit, and function of everything from household items to industrial parts—all printed from a personal computer. With a published price tag of $15,900, the 3D machine represents a significant investment for most businesses. But thanks to a partnership between Stratasys and the UPS Store, small businesses and individual entrepreneurs will have lower-cost access on demand. After a six-store pilot, UPS announced an expansion to nearly 100 additional locations. This was a significant investment, but a relatively cheap experiment to ensure that the UPS network remains relevant in an evolving world. Of course, Amazon is also experimenting with 3D printing, with its Creative Expressions store. Personalized bobbleheads won’t be particularly disruptive to supply chains—but for Amazon, they represent a low-cost way to test the water.
Unfortunately, in most cases 3D printing proves far more expensive than traditional mass production. And although the “maker movement” hopes we will all buy artisanal or customized versions of everything, in reality most consumers prefer the lowest-cost, most functional version of a given product. Customization needs to offer more value than mere aesthetics to capture significant wallet share. To achieve that, entrepreneurs need to remember Amazon and books: The ultimate vision might be bold, but initial execution needs to be narrow.
A great real-time example can be found in SOLS, a California startup with a long-term vision of creating custom designer shoes. Founder Kegan Schouwenburg, who was an early employee of 3D printing service Shapeways, was inspired by the breathtaking beauty of the shoes featured on the catwalks of Paris, Milan, and New York—but simultaneously stymied by their obvious disregard for comfort. But rather than seeking to disrupt the shoe industry from the outset, her startup focused on prescription orthotic inserts, which were long-lead-time items that cost a hefty $600 or more. SOLS is disrupting that supply chain by eliminating the paper specifications, plaster casts, and hand production with a digital scan of the patient’s foot and a 3D printed insole. SOLS also developed an iPad app to scan feet in order to produce the 3D printable design, factoring in elements such as the person’s weight and lifestyle. From that base set of capabilities, SOLS envisions eventually offering direct-to-consumer inserts at lower cost and eventually custom-designed—and comfortable—designer shoes.
The Path Forward
To assess whether 3D printing will disrupt your supply chain, merely ask yourself whether its shortcomings can be overcome with customized production. If you’re selling mass-produced items based purely on low cost, 3D printing offers little threat. But if your supply chain demands customization or one-off production of expensive items, this new technology is a threat. That’s particularly true if your current supply chain is slow and unresponsive. Aerospace companies have been leading advocates of the technology given their low-volume, highly engineered product inputs. And supply chains for spare parts appear ripe for disruption—at least that’s the bet by Kazzata, launched in the latter half of 2013 and billed as the first marketplace for 3D printed spare parts.
Like Internet retailing, the impact of 3D printing on commercial supply chains will probably play out over decades, leaving a host of failures in its wake and a few grand successes. Which will be your fate?
About the Authors
Tim Laseter has 30 years of operations consulting experience and over a dozen years of experience teaching in top MBA programs including Darden, Tuck, London Business School, and NYU. Tim is an author or co-author of four business books including “Strategic Product Creation” and “Internet Retail Operations.”
Michael DuVall is a Chicago-based Partner who works at the intersection of the firm’s Operations and Consumer & Retail practices. An expert in manufacturing and supply chain, Michael helps consumer products companies manage the dual challenges of broadening product portfolios and increasingly demanding and price-sensitive consumers.
Brad Householder is a PwC principal and leader of PwC’s Supply Chain practice. With more than 30 years of industry and consulting experience, Householder is one of PwC’s leaders in developing and implementing innovative supply chain strategies and solutions across a wide range of industries and organizations, including high tech, industrial manufacturing, chemicals, petroleum, and defense. He was a key contributor to the critically acclaimed book, Strategic Supply Chain Management: The 5 Disciplines for Top Performance.