Making a business case for additive manufacturing

- Throughout the many segments we've been through in this course, we've covered a lot of territory and looked at a lot of information. Importantly, we've tried to answer two questions: number one, what is additive manufacturing? And number two, how can we think about the ways in which it will apply to our business, so that we can add value? We've done that so that we can position you to have a discussion with your colleagues or with your boss, with your customers or with your suppliers about where to invest in additive manufacturing, if at all. But I think that we have to admit that almost any discussion of investment in additive manufacturing is going to come down to one key question. That is, is there a business case? We have to address it. I'm going to point us back to the figure that we looked at earlier with the cost curves. You know, the one with the traditional cost curve and the additive manufacturing cost curve and where they intersect. That point of intersection is the breakeven point, where additive manufacturing either does or does not make sense, relative to traditional manufacturing methods. It turns out that there's a fair bit of research out there that explores exactly where that point exists. Now, it's true that the specific point for your business is going to depend almost entirely on the context, but that doesn't mean that there aren't some factors that we can look at that you should be aware of as you conduct your own explorations, and I'd like to review with you four major areas that are important for any business case to consider. Now, when I offer you these four points, I want to be clear that most of the research around breakeven points for additive manufacturing involves comparisons with plastic injection molding, although we believe that these points will make sense in the broader context of almost any of the processes that we've looked at. We just want to know what we're talking about. The four areas that we want to look at are labor, tooling, machine costs and materials. Labor represents a big part of almost any business case, but we want to be clear that in our comparisons of traditional and additive manufacturing breakeven points, at least according to the literature, we can find no clear evidence that labor rates systematically differ between these two sets of technology. However, we want to be equally clear that part simplification opportunities may reduce total input of labor through the reduction of components, and therefore, the reduction of component assembly steps. So for example, in one study that we looked at, the ability to reduce the total number of components that go into an assembly allow the manufacturer to take up to two thirds of the total labor content out, even though labor rates didn't differ much at all. Now, we've also talked about tooling and its impact on the business case for traditional manufacturing methods. Tooling represents, in many cases, a very high initial fixed cost, investments that must be made prior to the production of even the first unit. Through additive manufacturing, we have the opportunity to eliminate, or at least reduce, the investment in that tooling, and that can make a big difference. Studies show that in some cases, up to 93.5% of expenditure in the total product cost is invested in tooling. Beyond production of the tooling itself, we have to consider the maintenance of that tooling, the storage of that tooling, the tracking of that tooling and the disposal of that tooling after the end of a product life. A key attribute of additive manufacturing is the ability to eliminate that tooling, thus taking the cost out of the equation. Now, in the business case for additive manufacturing, machine costs weigh very heavily. Machine costs, in fact, can dominate the overall business case for additive manufacturing, representing up to 60 to 70% of total direct costs. As a result, acquisition, depreciation and the associated tax implications of investment are very important to the overall business case, and you should evaluate these costs with your tax professionals or other professional service providers that can paint the full picture for what incentives or other rules might apply. As you think about machine costs, you should also consider factors such as build volume, that is, how much of the machine's initial capacity are you actually using, machine utilization, that is, how much time during the day are you using it, and maintenance issues. Now, materials are also key to the business case for additive manufacturing. There are extreme cost differentials between additive and traditional manufacturing material feed stocks. So for example, thermoplastics and photopolymers, for additive manufacturing, these can cost between 175 and $250 per kilogram, whereas for traditional injection molding, those costs drop to just two to $3 per kilogram. Material recycling rates are also critical here. We know that in some processes, there's high wastage and high scrap associated with production, whereas in additive manufacturing, those costs can be reduced. Finally, consider process yield. That is, what is the failure rate of the production process we're using, additive or traditional manufacturing. Now, to illustrate these points, I want to show you a graphic that we obtained from one study that we looked at. This study involved the redesign and production of a plastic injection molded part for the electrical industry. It's a small part. On the right and left hand sides of this, we see bars that show injection molding cost structures at 20,000 units on the left, and at 100,000 units on the right. In the middle, we find the additive manufacturing cost structure. If we look at the left, at the 20,000 unit capacity, the thing that I'd like you to notice here is the blue bar. That blue section represents over 90% of the overall cost of the injection molded part. In fact, everything else, machine, material, operator and assembly, comprises a very small percentage of that price. That's the impact of the fixed cost of production associated with traditional methods. If we look all the way to the right, we see those bars are much shorter. The everything else segment is still very very small, tooling still dominates, but the ability to amortize the cost of tooling across all those units significantly reduces the average unit cost of each unit. Now, I want to point out that the additive manufacturing cost structure in the middle is still very competitive with the injection molded part, even at 100,000 units. In fact, the breakeven point in this study came in as high as 121,000 units. However, when we look at the additive manufacturing cost, we see that machine and material totally dominate the equation, and there is no tooling cost, because tooling wasn't used in this application. I also want to point out that there is only one bar for additive manufacturing, and two for injection molding. That's because if we think about that figure that we looked at, the tooling costs are amortized, and therefore, the cost curve slopes downward for injection molding, but it's very flat for additive manufacturing, which is essentially all variable costs. Now, when we think about the business case in general, we can't just think about the direct cost. Any good manager knows that there are intangible benefits and costs to almost any production process. As we're thinking about the business case for additive manufacturing, it is equally important to consider issues such as time to market. How important that I am able to leverage the time to market advantages of additive manufacturing processes, in terms of product development, in order to beat my competitors? We can also consider the importance of better meeting the needs of our customers, in terms of the qualifications and qualities they demand in the products we sell to them. How important is it that my products be both better and cheaper than those of my competitors? Could be important to the overall business case. In closing, I'd like us to keep in mind five key issues that we should think about as we're constructing a business case for additive manufacturing. Number one, additive manufacturing is not a panacea. There's no reason to view it as a universal replacement for traditional manufacturing methods. We do, however, see it as an important within the consolation of general manufacturing methods that businesses can deploy in pursuit of performance, innovation and growth. Number two, consider both the blessing and the curse of flexibility-enabled product innovation, depending on where you sit in the supply chain. The opportunity to redesign, to reduce material and assembly time, while improving product performance is real for additive manufacturing. On the other hand, we cannot ignore the possibility that part simplification could result in the elimination of other players from the supply chain. We want to make sure that that's not us. We have to consider where we sit within the entire constellation of the value network for the products that we contribute to. Number three, start with the folks on relatively small, complex plastic components, but remain open to applications for larger and metallic components. This is especially true when using high cost materials with high scrap rates. We know that the business case for smaller plastic parts, especially if they're highly valuable, runs into the tens of thousands or even into the hundreds of thousands of units, so that's a great place to start. But we also know that, in particular, large companies are very excited about the potential to produce large metallic components using additive manufacturing technologies, so it bears watching in the future. Number four, develop a clear picture of the financial implications of the new technology investment. We know that machine cost dominated additive manufacturing. Seek advice on depreciation and tax incentives. We also know that tooling costs can shift the calculus towards additive manufacturing, due to the expense, inflexibility and impact on time to market of these materials. Last, adopt a broad perspective on time. Before deciding that additive manufacturing is slow, consider the full production cycle involved in traditional methods. Is the issue that you face producing the unit piece, or is it delivering that piece to some remote location? In one case, additive manufacturing may look very slow. In the other, it could be the fastest thing around.