Automation driving productivity gains but retraining programs needed
A really insightful article was published by Ylan Q. Mui of the Washington Post today. It spoke about the current state of American manufacturing, which has obviously been a topic of immense focus in this election cycle.
What the article tells us is that American manufacturing is actually doing very well, at least from an aggregate production standpoint. In fact, total output is nearing the all-time high levels that occurred immediately prior to the Great Recession.
It is true that the total number of Americans employed in manufacturing has gone down significantly in recent years. But that inherently implies that the people doing the manufacturing are reaching new levels of productivity on a per person basis.
We can speak to this first hand. Every day at 3Diligent, we interact with companies pursuing more effective production of their next generation prototypes, production parts, replacement spares, and custom tools to support some of their traditional manufacturing processes. All of these companies recognize that advancements in technology are providing them new and better ways of doing things. Injection Molding, CNC Machining, and most recently Additive Manufacturing (a.k.a. 3D Printing) are all examples in that progression. Our rock star contract manufacturing partners utilize those tools to accelerate innovation and make our customers more competitive in the global marketplace.
Automation is a good thing. It allows us to innovate faster and produce more products locally that otherwise would need to be sent overseas to be price competitive. While the pace of change can sometimes make us uncomfortable, we have to recognize that short of an international truce on technological advancement, continued automation is going to happen. Because America doesn’t have a monopoly on processors, memory chips, and the internet, trying to pump the brakes on technological advancement only stands to leave us behind those countries who are pushing forward aggressively. Better to be the ones doing the innovating and creating the next generation technologies than the ones having to buy them from overseas once foreign countries have developed them.
With that said, whether it be to automation or overseas labor, there are a significant number of manufacturing professionals who have been lost in the shuffle. So for all the macro benefits that faster times to market and lower unit costs provide the American economy, at the micro level, there are some very real consequences for those individuals displaced by technological advancement and their families.
It is of critical importance then that America develops retraining programs for manufacturing workers displaced by automation and globalization. Such retraining programs can equip those displaced workers with the skills to tackle jobs for the new manufacturing economy or transition them into other industries.
That is one of the reasons that we at 3Diligent are big supporters and proud members of America Makes, the National Additive Manufacturing Innovation Institute. In addition to funding a wide number of research programs helping foster American innovation in the area of 3D Printing, they are also starting to really tackle the challenge of helping train the next generation of American manufacturers in how to get the most out of additive manufacturing technology and take this innovation from the R&D lab to the shop floor.
American manufacturing is doing admirably but it isn’t without some serious growing pains. We are excited to support innovative companies that are embracing this evolution and organizations like America Makes doing the right things to help retrain American manufacturing workers to succeed in these times of rapid change.
Cullen, our CEO, talks to TCT at RAPID about how 3Diligent has created a network of industrial grade 3D printing service providers to solve the supply and demand challenges of the current market. By bringing together industrial service providers across North America, customers can take advantage of submitting a single RFQ’s to a network of vendors across the region and experience the fastest turnaround possible for that given part and process.
“We’re kind of an Uber meets Amazon for industrial grade 3D printing. Much like Uber has networked a whole bunch of drivers and Amazon has networked a bunch of retailers – we have networked industrial service providers with heavy-duty resin, plastic, and metal equipment. What that allows you to do as one of our 3Diligent customers is submit a single RFQ using an algorithm that analyzes the RFQ and routes it dynamically to those vendors who are capable of doing the job. You get real time bids and, as a result, faster turn arounds and fantastic prices for guaranteed quality work – as we back every part with our money-back guarantee.
Additionally, 3Diligent will help you identify who has the availability at any given moment to meet very fast turn arounds. Sometimes that will be a local provider, but sometimes that local provider may have a back log of weeks on a particular production run. [With 3Diligent], you won’t be held down by just what is in your neighborhood but rather be able to access some vendor across the country that can get something to you next day or two days out that you would have never come across otherwise.”
3D Printing is naturally and uniquely suited to distributed production across many sites. 3Diligent has qualified and networked the providers to do distributed manufacturing right.
Despite less than stellar stock performance from a few publicly traded market leaders who placed unfortunate bets on consumer 3D printing, the additive manufacturing industry as a whole is indisputably in a state of rapid expansion.
Innovation is happening across myriad industries. Surgeons are improving patient recovery times and care through custom 3D Printed implants. Aerospace companies are shedding pounds off their planes and months off their time to market with topologically-optimized designed-for-3D parts. Manufacturing companies are creating highly complex jigs, fixtures, and molding inserts with 3D printing to bring down costs of production and increase efficiency.
The Catalyst: Proliferation of Industrial 3D Printing Processes and Materials
All of this is brought about by a proliferation of new 3D Printing technologies and materials that are allowing for ever-expanding applications. No longer exclusively the province of 3D Systems and Stratasys, innovation is coming from all corners.
The metals world is led by a mixed bag of companies including EOS, Concept Laser, Arcam, SLM Solutions, ExOne, and Renishaw, with prospects like XJet and Desktop Metal on the way. With respect to plastics and resins, just look to the recent launch of Carbon and the impending market arrivals of flagship products from Voxel8 and HP as indications that competition is not just from imitators, but true innovators, with each bringing unique capabilities to bear.
The Problem: Identifying the Right Process/Material Combination to Meet Your Additive Manufacturing Needs
In aggregate, it’s clearly an exciting time for the industry. But if you’re a user rather than manufacturer of these technologies, where does all this leave you and your company? Advancement in technology is wonderful – it brings the promise that you’ll soon be able to do more, faster. But it comes with a very clear caveat emptor. With rapidly evolving technology comes risk of ownership. The costs of buying equipment and material, training staff, and servicing the machinery are significant – and come with the threat that it will all be for naught when the next big thing hits the market.
It’s no wonder then that many companies often choose to offload that risk and learning curve onto outsourced service providers – or service bureaus as they are otherwise known.
But does an outsource service provider really solve the problem? Overall customer satisfaction with service providers suggests the answer is no. Prices are sometimes insanely high, material availability is spotty, and lead times can be weeks. Of course, this makes sense. These service providers face the same constraints that their customers do – they can realistically only carry a subset of machinery and materials, and as a result, customers are constrained by what providers are running when. It seems as often as not, service providers are calling a friend at another provider for a quote, adding a few percent to that price, and seeing whether the customer will take it. It’s no wonder that for a technology that is supposed to bring down costs and increase speed, things tend to feel expensive and slow!
3Diligent: A Next Generation Solution for a Next Generation Technology
One Los Angeles-based startup is looking to solve this industry dilemma: 3Diligent. In light of the rapidly evolving landscape for this next generation technology, the team at 3Diligent believes a next generation service solution is required.
3Diligent is in some ways like Uber or Amazon for industrial grade additive manufacturing. Both of those companies created a superior customer experience by creating digital connective tissue between demand and sources of supply that might otherwise go untapped. Both also provide you a range of mid-to-high end options depending on your need at the moment. Just think, on Amazon you might buy a TV from a retailer you wouldn’t find online in a million years, or via Uber you might hitch a ride from a guy named Jim that you couldn’t have known was game to drive you halfway across town at a moment’s notice. Both provide tremendous customer benefit by connecting the dots of the market with hyper efficiency.
3Diligent is bringing this distributed supply, on-demand model to the industrial 3D printing world. Over the past two years, the 3Diligent team has vetted and qualified industrial service providers for its 3D printing service. The 3Diligent network now represents several dozen industrial service providers across North America representing roughly a half billion dollars in annual manufacturing capacity. At any given point, there are hundreds of 3Diligent-networked machines ready for a new project, running dozens of different resins, plastics, and metals.
Implications of a Distributed Industrial Manufacturing Partner for Your Business
What does this mean for you as a customer? An expectation of faster turnarounds and highly competitive prices on your prototyping for a start. Customers across many industries visit 3Diligent.com to submit RFQs, which the 3Diligent algorithm then analyzes to identify capable vendors and facilitate real-time bidding for the work. Customers accept bids on the platform, and 3Diligent guarantees the quality of parts, offering customers a full refund unless agreed upon specs, tolerances, and delivery deadlines are met.
Figure 4. 3Diligent’s algorithm and team of experts analyze RFQs and identify the most capable vendors for that particular job.
Pushing toward production runs? Again, 3Diligent offers the prospect of a flexible and scalable partner by operating as a general contractor for project runs across its distributed network. By its nature, this network provides more capacity than any single provider along with the ability to rapidly scale up. 3Diligent also offers a hedge against supply chain disruption, as its distributed network across North America prevents local calamities from impacting your broader production.
It is an indisputably exciting time for innovation in 3D printing. Hardware is advancing rapidly, which is good news for speed and reliability. New materials are being announced regularly, opening the door to new applications. And 3Diligent continues to advance its software and service offering, ensuring customers can access this rapidly expanding universe of opportunities through its next generation 3D Printing service.
Cullen Hilkene is CEO of3Diligent, a 3D printing service provider. He is an alumnus of Princeton University, the UCLA Anderson School of Management, and Deloitte Strategy and Operations Consulting.
A version of this article previously appeared on Engineering.com.
A couple weeks ago, members of the 3Diligent team paid a visit to Sin City to take in the sights and sounds of the International Consumer Electronics Show. Since we’re all about industrial grade 3D Printing, we don’t go looking for the next generation of personal printers on display there. We go to connect with our customers displaying at the show and to take in the 3D Printing discussion track, where some of our industry’s heavyweights offer perspective on how they are positioning themselves to support the next wave of consumer products – whether it be toys, electronics, or household durable goods. The sessions didn’t disappoint. And whereas last year “generative design” ruled the day, this year it was “bespoke materials.”
So without further ado, here are five key 3D Printing takeaways from CES 2016:
The Lewis Lab – and presumably Voxel8 with it – have some cool materials in the pipeline.
Jennifer Lewis has become somewhat of a brand name in the 3D Printing industry for the advanced 3D Printing work she’s done in her lab at Harvard. At a biomedical conference we attended in 2015, the buzz was about work the lab was doing to print vascular systems. At CES, she led a discussion about material science. The most publicized breakthrough they’ve made is in the silver-based conductive ink used in the Voxel8 printer. But they plan to release a number of different “inks” that take 3D Printing “beyond form, and start to integrate function” in the near future. Conductive, epoxy, flexible, and battery inks are all in the pipeline and have been tested with compelling results in their lab.
Carbon3D’s angle isn’t just speed, it’s materials too.
Carbon3D’s Joe DeSimone used the CES platform to make some notable announcements about their offering, although we haven’t seen much of it made in the press just yet. The big announcement – that they are rolling out 4 resin-based materials – is significant for a few reasons. First is that they’ve developed custom polyurethanes that their data suggests are comparable to a number of thermoplastic counterparts. These include rigid, semi-rigid, high heat, and elastomer, providing a decent range of options for varying applications. Second is that if those resins are truly industrial strength and the Carbon3D speed is what it’s cracked up to be, then Carbon has offered a meaningful step in transitioning 3D Printing from being a primarily prototyping to production technology.
The ISS is open for business, via Made In Space.
Made in Space is a super cool company, solving a major supply chain problem…getting things to space is really expensive. Not only do you need to buck up for a rocket that can get you there, but you also have to massively over-engineer anything making the trip to space strictly for the few minutes it’s taking on big G forces to get out of our atmosphere. With Made In Space’s “space-grade” 3D Printer, astronauts on the International Space Station can simply have files beamed to them and then printed by the crew. That’s cool by itself, but perhaps not the basis of big business. Now MIS is taking things a step further now, by opening up the ISS 3D Printer for business. Made In Space has designs on having companies beam designs for cube sats (small, high powered cube satellites) and other high value assets for printing in space that would otherwise have to hitch a ride on a rocket.
HP’s MJF is on its way later this year.
HP offered some perspective on its 3D Printing endeavor, Multi Jet Fusion. Scott Schiller of HP provided some detail on the process, which sounds like existing multijet/colorjet printing on steroids, with a lot more nozzles and thermoplastic (nylon, in particular) instead of gypsum powder. He described the process as building upon the technology in HP’s large form 2D Printers, which are differentiated by a staggering number of nozzles per square inch. It appears that with so many nozzles in such a small space, curing of the powder can happen much faster and possibly at a higher level of detail/crispness than previously possible. It did make us wonder though, if you’re going to saturate the powder with all of these nozzles, what does this do to material properties? Existing MJP/CJP technologies don’t tend to produce especially durable parts, but we’ve seen pictures of HP test parts doing heavy duty applications. As we approach HP’s launch target of Q4, we look forward to seeing additional testing data.
The 3D Printing market is up to $4.5B globally.
Joe Kempton from Canalys offered up that consultancy’s current estimate of the global 3D Printing market is $4.5 Billion. That figure reflects the combination of total annual revenues across printers, materials, and services. 45% of that amount was in the Americas, 34% in Europe/Middle East/Africa, and 21% in the Asia Pacific region. We look forward to the estimate in the forthcoming Wohler’s Report as another reference point on the industry’s continued growth.
Did you make it to CES and have other big takeaways? Do any of these developments speak to you? Let us know in the comments!
Cullen and the 3Diligent Team
Cullen Hilkene is CEO of 3Diligent, the Sourcing Solution for Industrial Grade Rapid Manufacturing. He is an alumnus of Princeton University, the UCLA Anderson School of Management, and Deloitte Strategy and Operations Consulting. For more information about 3D Printing and to access 3Diligent’s marketplace of 3D Printing vendors, visit www.3Diligent.com
Trio of classmates at Pembroke Hill School in Kansas City take 3D Printed Trophy Contest Grand Prize
A few months ago – after 30 years and a lot of crummy baseball – the drought finally was over…the Kansas City Royals had won the World Series!
A few days afterwards, two hardcore Royals fans at 3Diligent HQ (Cullen and Wyatt) started cooking up a notion of how to uniquely celebrate the momentous occasion. And what they came up with was 3Diligent’s first ever 3D Printed Trophy Contest.
The idea was to take advantage of 3Diligent’s unique place at the crossroads of cutting edge design and industrial grade 3D Printing by inviting all kinds of designers to create the ultimate 3D Printed memento of the World Series victory. We’d then go out and print the winning trophy via our 3D Printing platform as a gift for the Royals.
The submissions we received did not disappoint. And when it was all said and done, a team of high schoolers took first prize!
3Diligent offers its hearty congratulations to Samuel Hrabko, Raghav Parikh, and Momin Tahirkheli for winning the 3D Printed Trophy Contest! $500 cash and $1,000 in platform credit are headed to this trio of up-and-coming designers! While we received a number of submissions that received top marks when it came to design aesthetics, their submission truly excelled in evoking the spirit of the team and Kansas City’s support for it. We loved the true-to-life representation of the city skyline and names of the 25-man roster, but perhaps most of all the way the design reflected the community’s support for the team. We thought the message at the base of the trophy “Supported By The Fans” and the fan figurines encircling the base were really cool touches. And we think anyone who followed the season would agree that fan support was central to KC’s season – from almost voting in a full starting 9 at the All-Star Game to 800,000 fans (almost 40% of the metro population!) showing up at Union Station for the championship parade.
Sam, Raghav, and Momin are classmates in Bill Griffiths’ 3D Printing class at the Pembroke Hill School in Kansas City, Missouri. We at 3Diligent care excited by how the educational market has embraced 3D Printing, and our thanks go out to Pembroke Hill and Mr. Griffiths’ for helping nurture the next generation of design through their classrooms. In recognition of their support for providing this unique opportunity to young designers, we are providing $250 in platform credit to Mr. Griffiths’ class at PHS for future 3D Printing projects.
Thanks to everyone who participated in or followed the contest! Keep your eyes peeled for the next one!
This time next week and for two days following, 3Diligent will be at Westec, the West Coast’s premier manufacturing event! We’ll be there along with hundreds of other industry experts showing off some of the latest innovations from the manufacturing industry.
Come pay us a visit in Booth 2540! If you’re looking for landmarks on the floor plan, we’re about halfway between the Stratasys and Concept Laser booths, near the cafe and foosball section (pictured below). If you don’t have a pass, just let us know ASAP and we should still be able to arrange a free pass for you. You can email us at customersupport@3Diligent.com.
We’ll be there to answer any questions you might have about 3D Printing, Rapid Manufacturing, and Sourcing Smarter through the 3Diligent platform. If you have specific questions about a particular project you’re undertaking, we’re happy to weigh in and offer our perspective.
It’s a fantastic opportunity to also see some of the industrial equipment we carry – which typically pretty huge – on display. Manufacturers represented on our platform including Stratasys, 3D Systems, Concept Laser, Arcam AB, in the booths of the manufacturers
Lastly, we will be accepting foosball challenges if there’s ever a lull in the action!
We’ll hope to see you there!
Who: Your friends at 3Diligent
What: Westec Manufacturing Trade Show – the West Coast’s premier manufacturing event
When: Tuesday, September 15 to Thursday, September 17
In this week’s post we will go over the steps to submit an RFQ for 3D printing and Rapid Manufacturing using the 3Diligent platform. An RFQ is a Request For Quote and serves as a blueprint of your project for our Vendors. This is what you will utilize on the platform and what Vendors will reference to create their bid. You can watch our walkthrough in the video below and read the rest of this post for a step-by-step breakdown of the process.
Log In / Sign Up
The first step is to log in to the secure 3Diligent portal or sign up if you don’t have an account yet. You will be directed to your dashboard where you can see the production overview and lifecycle of your projects at the top, tutorial videos at the bottom, and access to different tools like the knowledge center, order history, orders and RFQs in process. When you click the “Create RFQ” button, you will be taken inside the tool to the project basics.
Once inside the “Create RFQ” tool you first need to enter the name and description of your project. This is very useful within the 3Diligent interface to get your project matched to the right set of Vendors. It’s also useful for our Vendors to know how this part fits in to a broader project, so they can offer up any expertise they may have straight away. Next is the confidentiality provision, if you want to opt into it. 3Diligent Vendors are always expected to exercise discretion with customer RFQs, but the provision provides additional protection.
Next, you will need to upload the files for your different parts. You are able to upload different types of CAD (computer-aided design) files, among them .stl, .igs, and .stp formats. You then need to specify which unit of measurement the files were designed in. This is particularly important for our Vendors to 3D print or manufacture the parts in the correct size. Then, there is a box to choose whether there is one single part to the RFQ (one file) or multiple distinct parts (more than one file); this makes it easier for our Vendors to know what they’re working with.
The next step is to choose the quantity that you need for the parts you have uploaded and set up the delivery date. Setting the delivery date allows you to choose when you want your parts in hand, not necessarily when the parts are going to be produced. Keep in mind that we have Vendors all over the U.S. who will be bidding for your job, so the delivery date allows them to plan for your project. Next, you choose your material and the process you want our Vendors to use. One feature we have on our site is the option to “let vendor choose” for material and process. With rapid manufacturing, a lot of times it’s hard to tell exactly which material/process is needed. Our Vendors can provide you with an opinion as to whether 3D printing, CNC machining, or Injection Molding would be best. The beauty of 3Diligent is that you can get quotes using different processes and you can choose one that is best suited to your needs.
Now we get into more specifics for the project. First, specify what type of surface finish you would like, be it smooth (which may need further processing) or rough. The next step is submitting the specifications and tolerances, which you can do by highlighting them in the box provided or alternatively by uploading a PDF file with any drawings or pictures. Finally, there is a field for “Additional Requests” where you can post anything that might not be clear in the rest of the process. This could be anything from assurances that certain features will come out in the print, an insurance that they will provide an inspection report, or really anything that comes to mind that you might need from a Vendor – this is where you will request it.
Shipping and Payment
Next, we get into the details of logistics where you specify the shipping address. This information allows us to give the Vendor a zip code so they can provide a complete bid inclusive of sales tax and shipping costs. Then we provide you with access to our payment information. Bank Transfer, PayPal, Credit Card, and Retainer are all options. Certain payment options, such as Credit Card and Retainer, allow you to move quickly on any bid you might receive.
Submit RFQ for 3D Printing
Lastly we are taken to the summary page where you can review all the details of your RFQ submission. If you are not ready to submit yet, you can save it or alternatively you can submit that RFQ. After that, all that is left to do is say “Congrats” – you have submitted an RFQ! Be on the look out for bids soon after submitting your RFQ along with messages from our Vendors regarding any questions they may have. As you can see, the RFQ submission process can be quite easy by following a few simple steps. If you have any questions or comments, please drop us a note in the comment section or email us at firstname.lastname@example.org and we’ll be happy to help you in any way we can.
In our last post, we touched on the evolution of manufacturing from the days of antiquity to today. Per its closing comments, we’re in the midst of a paradigm shift in manufacturing. While Globalization has been defined by subtractive manufacturing at tremendous scale in low cost economies, this next generation will be defined by something quite different. While global manufacture of simple parts in low cost locations will persist for generations to come – with simple, standard parts, it will probably always be the way – additive manufacturing for fast turn, complex parts will increasingly integrate into the supply chains of corporations around the world. In this post, we’ll dive deeper into a comparison of the “globalization” manufacturing approach relative to 3D Printing, discuss how key cost inputs are likely to evolve, and how that impacts the “3DP Crossover Point.”
A Quick Recap
To level set from our previous post, we find it useful to track the evolution of key inputs that have driven the cost of goods over time. The key inputs we looked at were Material, Labor, Shipping, and Overhead. As time has gone by, costs on the whole have gone down. At each step of the way, a different lever or combination of levers were pulled to drive down this cost. For instance, raw materials grew cheaper through better extraction techniques, labor cost went down through outsourcing to lower cost markets, and shipping cost dropped through advances in transportation. We’ve generally seen an increase in what we’re calling overhead as an overall percentage of cost, as sales, marketing, and management layers grew. But in recent years, we’ve even seen the cost of that layer reduce with the offshoring of white collar jobs, as supported by advances in telecommunications support increasingly global work forces.
The New Cost Calculation
CAD-based manufacturing more broadly, and 3D Printing more specifically, stands to take this evolution a step farther. To recap some of the detail provided in the previous post, the comparison between Globalization-style manufacturing and 3D Printing is summarized here:
As it stands, 3D Printing has markedly higher raw material costs, comparable labor cost (due to a lower amount of labor required), and lower shipping costs (because it tends to be shipped a shorter distance). 3D Printers are expensive, but so too are traditional lathes, mills, etc. The net effect of these tradeoffs is that certain jobs lend themselves to one process or the other. For now, the jobs that tend to make sense for 3D Printing / CNC Machining are rapid turn parts in small quantities. For these smaller job, the investment in tooling required to run a traditional manufacturing process can simply be too high. For instance, an injection molded part might cost tens of thousands for the mold but just a few dollars in variable unit cost. To 3D print the part might only cost $10 per unit with virtually no setup cost – so long as a the print bed is filled, maximum . As you can ascertain from this example, a crossover point tends to exist where it’s better to make a bigger up front investment and smaller unit cost. But up to that point – so long as there aren’t material limitations – 3D Printing or CNC Machining is the better choice.
The Evolving 3DP Crossover Point
We only see the point at which 3D Printing gives way to traditional manufacturing processes gradually pushing out in the future:
Currently, material costs are very high because manufacturers have operated with a razor and blade model – often selling the printers at relatively thin margins and capturing profit on proprietary materials to be used in those printers. With that said, the rapid expansion of the market and recent announcements of new entrants stands to suggest an increasingly open materials marketplace. In this future state, materials prices stand to go down – especially as large materials companies who have been waiting for the industry to mature begin pushing into the market themselves.
Labor costs are positioned to drive down in a similar way. 3D Printing is driven by Computer Aided Design (CAD) files – they read a design that’s been uploaded into the printer, and it builds the part. Currently, there is a significant degree of art to go along with the science of 3D Printing, which means engineers play a significant role in managing the production. But while even industrial machines are not simple push-button part machines, that is the direction printer manufacturers are going. In this way, labor rates in a given location don’t matter, because there are virtually zero man hours allocated against production of a given part.
This then leads to Shipping costs, which also stand to be lower with 3D Printing. Because 1) material cost should be fairly equal around the world and 2) labor cost should be a non-factor, then the need to utilize far away markets for production is significantly diminished. Instead, customers can bring production in-house or, as our platform facilitates, utilize service providers who’ve invested in the technology. Doing so massively drives down the cost of shipping.
Now that production quality materials have become available for industrial 3D Printers, there are many occasions when 3D Printing is a better alternative to traditional manufacturing techniques. For now, those projects are the ones with limited volumes, high complexity, and quick turnaround needs. That limited 3DP to a prototyping niche for the past few decades. However, the door is opening to spare parts manufacturing and limited run production parts in the present, and in the not-too-distant future the larger scale fabrication of production parts.
We’ll discuss the implications of this in a future post…
After shedding jobs for more than 10 years, our manufacturers have added about 500,000 jobs over the past three. Caterpillar is bringing jobs back from Japan. Ford is bringing jobs back from Mexico. After locating plants in other countries like China, Intel is opening its most advanced plant right here at home. And this year, Apple will start making Macs in America again.
There are things we can do, right now, to accelerate this trend. Last year, we created our first manufacturing innovation institute in Youngstown, Ohio. A once-shuttered warehouse is now a state-of-the art lab where new workers are mastering the 3D printing that has the potential to revolutionize the way we make almost everything. There’s no reason this can’t happen in other towns.
– President Obama, 2013 State of the Union Address
There is no shortage of buzz about the potential of 3D Printing to bring manufacturing back to America. Much of this buzz is justified. As we’ll talk about in Part Two of this post, 3D Printing stands to fundamentally alter the economics of manufacturing. But to appreciate how this will unfold, we first need to look at the history of manufacturing. We need to understand where we are today and how we got here. With this understanding, we can better foresee where we’ll go, and the implications of that evolution.
With that in mind, this post is dedicated to discussing the evolution of manufacturing since its earliest days – with an emphasis on the massive advancements of the last two centuries.
Primer on Input Costs
As we embark on this journey through the history of manufacturing, I think a few input costs prove most useful to track over that time. These input costs are the key variables that make up the total cost of a product, and they have evolved significantly over time. You’ll readily find these variables in an economics text book or the revenue statement of just about any business around.
Material – This is the component of cost for the raw material inputs to a product. Basically, the stuff used to make a product.
Labor – This is the cost of manual labor included in a product. Basically, the cost of the folks who are working in the assembly line or warehouse to get the product made and out the door. When combined with Raw Material cost, you get COGS as listed in a typical revenue statement.
Shipping – This is the cost of getting finished products from your business to the market your products service.
Overhead (Machinery, Property, SG&A) – This is the cost of having a business and keeping the lights on. It includes the machinery purchased to make goods, the lease/mortgage to house your operations, and the basic personnel required to oversee a business’ operations.
As we talk through the evolution of manufacturing, we’ll try to be consistent in our rankings on the basis of historical comparison. So you might think of a high/medium/low rating as a comparison to the historical level for that input cost to create a single product. In other words, cost of labor today is lower today than in the past based on the productivity of that labor – even though the wage might be higher than in the past.
Pre-Industrial Era (2000BC – ~1800AD)
In the early days of manufacturing, you wouldn’t call it manufacturing. You’d call it making. People simply made stuff. Think in terms of Homer’s Odyssey through to Colonial times. In this era, the stuff people made was based on what was handy and local. Aside from colossally expensive feats like the Pyramids, people manufactured with what was in their proverbial back yard. And even with the Pyramids, goods were just floated down the Nile. Fast forward to the Colonial era, people still used what was local to them or what was easy to ship down a river. The invention of roads and nautical trade routes allowed for things like luxury goods to be transported across longer distances – for instance the Atlantic and the Silk Road – but large scale transport of basic goods simply didn’t exist. Here’s how the economics of that looked:
Material – Medium. People just used whatever stuff was lying around. This eliminated the cost of extraction, but it limited the materials used. The notion of using materials from anywhere other than “over that hill there” basically was a non-starter.
Labor – High. It was whoever was around to make it. And to make something took a lot of manpower. So much, in fact, that people in power would often choose to tip the scales in favor of keeping costs down through vassalage or slavery – so artificially low despite still being pretty high.
Shipping – High. Roads as we know them now hardly existed. And the stuff moving across them was a horse, donkey, or camel – not exactly geared for massive shipment.
Overhead (Machinery, Property, SG&A) – Non-existent. Quite simply, there weren’t a lot of machines around to do work – it was all hand labor. Machinery costs didn’t exist, property costs were somewhat irrelevant due to the lack of outside competition, and formal sales and marketing divisions didn’t exist.
Summary: It was expensive to make just about anything, so you used what was handy.
First Industrial Revolution (~1800 – ~1840)
With the arrival of the cotton gin, the game changed. Harvesting cotton became more efficient and suddenly textile mills started appearing near rivers. That’s where the power of rushing water could be used to power looms and expedite the production process. During this phase of manufacturing history, the cost of material went up a bit – people were investing in cultivation of the land – but the amount of labor required for a singular task went down. While knitting a new shirt once took weeks or months (just ask my mom, who’s been at work on family Christmas stockings for the better part of her adult life), it suddenly just took hours or days. This reduction in labor input singlehandedly offset higher costs of overhead in the form of machinery, and material costs, as “what was lying around” didn’t always work nicely with a loom. Here’s how the cost picture looked:
Material – High. As the possibility true manufactured goods arrived, so too did slightly higher input costs. Looms only run on cotton, so you paid whatever it cost for a whole bunch of folks to manually plant and reap the crop.
Labor – Medium-High. The cost of manufacturing things was reduced manifold. What once took months or years took days or months.
Shipping – High. Rivers were the cheapest means of shipping. Roads weren’t paved. And the vessels moving on those thoroughfares were of a distinctly manual nature.
Overhead – Low. This went up as well. Whereas before people were just doing their own thing, buildings needed to be put up to house machinery, and some limited management had to be created to oversee the worker bees.
Summary – The first machines significantly dropped the cost of labor. It was still expensive as heck to ship anything anywhere, and some overhead costs were created to oversee larger groups of people doing a task, but those high costs were more than offset by customer demand for these goods and the relatively lower amount of labor required to make them.
Second Industrial Revolution (~1840 – ~1910)
This phase of manufacturing history was defined by the arrival of the factory as we know it. Massive facilities were created to process raw materials and turn them into usable ones (e.g., US Steel, Standard Oil) and companies grew up to efficiently turn those input goods into finished goods (e.g., Ford’s assembly line). During this phase of manufacturing history, the cost picture looked like this:
Material – Medium. Increasing specificity in material needs – namely coal, steel, and oil – drove up the standard cost of material. Extracting that stuff wasn’t easy – people mined mountainsides and dug oil wells for these substances that had suddenly become immensely valuable. To trim down the cost of moving raw material around, factories tended to locate close to the places where mining opportunities existed.
Labor – Medium. Again, efficiencies in manufacturing drove down the input cost of labor significantly. But the sheer manpower required to make Model Ts and other industrial products of the era was significant.
Shipping – Medium. Considering on its march downward, shipping costs declined as railroads began lining the countryside. Oftentimes, railroads would be run directly into factories so that goods might be delivered straight to market.
Overhead – Medium. More personnel was required to oversee growing numbers of employees in a factory.
Summary – Shipping costs tracked down a bit with the arrival of railroads. Labor input for a given part also dropped relative to the cost of the part, as plants and assembly lines made industry as we know it possible. Sure, a bit of additional management had to be created to oversee the many folks in a factory, but again, market demand for these manufactured goods and the savings created by more efficiently making them more than offset any cost increases.
The Arrival of Modern Transport (1950-1980)
On the whole, the manufacturing world tracked on the path that was created for it during the Second Industrial Revolution until this era. During this time, shipping costs took another step downwards, as the interstate system grew up and rapid transportation from one state to another was possible. Manufacturing companies began moving their operations out of expensive downtown areas in favor of locations on the periphery of town near “circumferential highways” that circled around a central business district from a few miles out.
Material – Low. Advancements in extraction continued. The cost of shipping extracted materials to factories dropped as the interstate system allowed for efficient delivery to factories.
Labor – Medium-Low. The labor input cost for a given good also continued downward. Increasingly automated machines required fewer workers to complete what was done in the past.
Shipping – Medium-Low. With the arrival of the interstate system, shipping costs dropped even lower than before.
Overhead – Medium-High. The sheer number of workers in the factory didn’t materially change, but the administrative staff did. Increased specialization in the workforce harkened the arrival of sales and marketing departments. Companies relocated to the suburbs, reducing property costs relative to more expensive downtown locations. This offset the cost of more “white collar,” higher dollar workers.
Summary – Labor costs continued marching downward as factories increasingly automated, requiring fewer workers on the line. Jobs in sales, marketing, and middle management were created, filling this void. The reduction in shipping cost was really the driving force between overall reduction in cost of goods.
Globalization (1980 – 2015)
Globalization has been defined by “offshoring” – the relocation of jobs to lower cost countries. Free Trade agreements opened the door to moving manufacturing to lower cost locations like China and Southeast Asia. Then, advancements in telecommunications and the arrival of the internet allowed for the offshoring of various “white collar” jobs like telemarketing and web development. Globalization has been in many ways defined by the decision of where labor is located, and whether the cost of local labor for a given task can be justified vs. utilizing overseas workers.
Material – Low. The technologies to extract materials from the earth remained as efficient as they were in the previous generation.
Labor – Low. Trade agreements like NAFTA and Trans-Pacific Trade Pact opened the door to lower labor-cost countries like Mexico (NAFTA) and China.
Shipping – Medium-Low. More efficient vehicles drove down the cost of shipping over land and sea. At the same time, the distances they had to cover tended to be far greater.
Overhead – Medium. Overseas properties tended to cost less to lease, although the management layer to manage international operations was higher. Equipment cost similar amounts wherever it was sold, although local production of equipment sometimes created overhead reductions as well.
Summary – Without anywhere to turn to continue the inexorable march toward more affordable goods, manufacturing increasingly was moved overseas to lower cost locations. Only those industries deemed worthy by governments of “special protection” could sustain themselves competitively against foreign competitors that were capable of producing similar goods at lower prices.
Third Industrial Revolution (2015 – TBD)
You may have noticed the trend line here. Companies have been looking for ways to drive down cost since the dawn of time to maximize their ability to win in an increasingly competitive, now-global, marketplace. Where can companies turn when Material and Labor costs have gone seemingly as low as they can go? 3D Printing offers an interesting potential solution, fundamentally changing cost calculus myriad ways. Since it is a work in progress, you’ll note that we’ve included trend information in the ratings here.
Material – Medium trending down. On a historical level, 3D Printed materials aren’t inordinately expensive, but they are in comparison to the hyper efficient extraction techniques developed to date. For any 3D Printing process, true raw materials aren’t an option – they only accept materials that have been pre-processed into powder, filament, or liquid resin form. However, as more competitors enter the market and advancements in material science take place, these costs will go down.
Labor – Low trending toward zero. Whereas even the most automated operations require some manual operation, 3D Printing is trending toward almost no labor input. That is significant, because when you’re multiplying an hourly wage by zero, the product is zero. The cost advantage on labor-intensive manufacturing that lower-cost countries enjoy gradually fades away.
Shipping – Low trending toward zero. Because production can co-locate next to its target market – with CAD files beamed via the internet to nearby production options – the cost of shipping is significantly reduced. In fact, as 3D Printers proliferate and penetrate all corners of the globe, the ability to eliminate shipping altogether is created. A customer can simply arrange for printing in-house or at a nearby printer and pick up the good rather than have it shipped.
Overhead – Medium, trending down. 3D Printing equipment is expensive – very expensive. Top of the line plastics printers cost a few hundred grand; metal printers often over a million dollars. Bringing operations back onshore inherently carries higher cost for a given space, but the spaces required for 3D Printing tend to be smaller. Instead of a massive factory, a fully functioning 3D Printing service bureau can exist in a space the size of a living room.
Summary – 3D Printing heralds the arrival of a new generation in printing. Quite simply, the crux of 3D Printing’s economics is the potential savings in labor and shipping vs. the higher costs of machinery and material. In smaller part runs, 3D Printing is already the more cost effective option. Our 3D printing customers regularly see significant savings for smaller runs of goods than they would going overseas for a 3D Printed, machined, or injection molded part. As we watch the cost of equipment and material drop over time, this will only become more pronounced, eventually making larger production runs more cost effective and local in nature. In this way, the reshoring of manufacturing will take place.
Over the history of manufacturing, there has been an inexorable march toward reduction in cost. By pulling the levers of material, labor, shipping, and overhead cost, people are now able to access a myriad of goods at a fraction of the price of even a generation before.
But so what? Cost coming down shouldn’t be a surprise to anyone. What are we to make of this evolution? Why does 3D Printing’s arrival really matter? Does it signal massive reshoring of jobs? Will cost really come down significantly?
A lot has been made in the press of 3D Printing stocks – most notably Stratasys and 3D Systems – over the last several years. First, they were darlings of Wall Street, reaching astronomical valuations buoyed by the seemingly unlimited potential of the technology, corresponding expectations for hyper growth, and their leading market positions. But something happened in the last year or so – the companies that had been grabbing headlines for their burgeoning market caps were getting those headlines for disappointing investors, missing earnings, and plummeting stock prices.
To an outsider, this might signal an ominous sign for the 3D Printing industry. Perhaps the technology has hit a wall – the hype was simply too big and the substance isn’t there to match it. Some have argued that the technology is passing through the fabled “trough of disillusionment,” when a public that had become enamored with a new technology’s potential comes to terms with the hard truth that its actual capabilities are a far cry from the headlines.
While there is cause to temper the most aggressive expectations somewhat – people will not eventually print everything at home, for instance (more on that in another post) – I would argue that these stocks tanking is a good sign, rather than a bad one, for the industry and technology as a whole. 3D Printing continues to retain the same promise it’s always had, and the advancements in the technology are rapid and encouraging. However, 3D Printing stocks have been getting hammered because those companies that are publicly traded are going through a genuine trough of disillusionment regarding their ability to corner this emerging market. They have suffered from some questionable acquisitions, pursuit of a consumer market that isn’t quite there yet, and a number of other factors that have given investors just cause to deflate valuations of those specific stocks.
But the industry marches on, and marches faster. A few key facts to consider…
Market growth was enormous last year, outpacing consensus expectations. According to Wohlers and Associates’ annual report, the global 3D Printing market revenues – defined as the combination of printers, feedstocks, and services – grew from $3.1B in to $4.2B in 2014. That’s a 35% growth rate, outpacing virtually every industry analyst’s expectation. Major printing stocks couldn’t keep pace with that industry growth – last quarter, DDD was up 8.8% over the same period last year, and SSYS was similarly up 14.4%. Not bad, but not 35%.
New innovations are introduced to the market on a seemingly weekly basis. Take the eight day span from March 17-25 for instance, when not one, but two companies – Carbon 3D and Australia’s Gizmo3D – publicized videos with prototype printers executing stereolithography-esque printing at speeds of 25x-100x what the market currently offers. Just a few months prior, HP officially announced its intention to become a major player in the market, with plans to introduce its MultiJet Fusion technology to the market before the end of 2016. And a few months later, Cosine Additive showed at RAPID with a large form FDM printer to compete with Stratasys’ Fortus 900mc.
Metal printing is exploding. EOS, Arcam AB, Concept Laser, SLM Solutions – all are signaling significant growth to the market. Take Arcam AB (the only publicly traded metal printer manufacturer of the bunch), for instance, which reported healthy growth and earnings in 2015 with a 105% increase in sales and 208% increase in earnings per share. Its stock price has also slid in the last year, but one might argue that’s a case of presumed guilt by association with other 3D Printing stocks.
Businesses that have invested in industrial grade equipment are busy and investing in new equipment. Since our company, 3Diligent, is in the business of connecting supply with demand for on-demand rapidly manufactured parts, I can attest to this from firsthand meetings with 3D Printing service providers and corporations. Quality service providers are busy and continuing to expand their industrial machine base. Seemingly every company has “Develop a strategy for 3D Printing” in its leadership directives. The demand is growing and the supply is growing to match it – in some cases, it’s backlogged. Incorporating additive manufacturing into product design and inventory management activities is simply too disruptive and potentially beneficial to ignore. And that isn’t to even consider the larger mass manufacturing implications for 3D Printing when a broader swath of designers understand how to optimize next generation designs for the technology.
So it’s important not to conflate disappointing performance by a few publicly traded companies with broader industry performance and prospects. Stratasys and 3D Systems continue to manufacture some of the industry’s most reliable and fully featured printers – particularly when it comes to plastics and resins. It’s just that Wall Street is coming to realize, among other things, that innovation with a technology this revolutionary is going to come from many places, and no two companies are going to be able to corner all of the market’s growth.
All things considered, this is great news for anyone hoping 3D Printing will guide us through another Industrial Revolution. Competition breeds faster innovation, better products, and more competitive pricing. So don’t lose heart that a few stocks have taken it on the chin the last few quarters – the future of 3D printing is very bright indeed…
Cullen Hilkene is CEO of 3Diligent, the Sourcing Solution for Industrial Grade Rapid Manufacturing. He is an alumnus of Princeton University, the UCLA Anderson School of Management, and Deloitte Strategy and Operations Consulting. For more information about 3D Printing and to access 3Diligent’s marketplace of 3D Printing vendors, visit www.3Diligent.com.