Four paths to value: Introducing the AM framework

- Hi there. We're back at Marquette University in Milwaukee, Wisconsin. When we were at America Makes, in Youngstown, we devoted our attention to understanding the first question of this course. That is, "What is additive manufacturing?" We looked at a variety of technologies, trying to understand their applications and their advantages and disadvantages. Back here at Marquette, we want to explore the second question. That is, "How do I think about the impact" "that additive manufacturing can have on my business?" In order to answer that question, we're going to explore a simple economic space framework that can help facilitate the discussion with our colleagues, our bosses, our customers, and our suppliers. We're going to frame additive manufacturing as an innovative technology. Innovative because it breaks two important trade-offs. The first with capital and scale, and the second with capital and scope. We'll explain what those mean. Let's begin with capital and scale. As a supply chain professor at Marquette for almost 10 years, I knew that one of the first laws of supply chain was that production wants to locate closer to demand. It wants to be close to demand so that it can better serve customers, in terms of matching what it produces with what the customers actually want. So why is it that we so often find ourselves in a situation where production's far away? Well, there's a simple idea called minimum efficient scale that helps explain it. The idea is that sometimes I need to make big investments in technology and in tooling in order to produce that first unit. And because that investment is so substantial, I need to produce lots of units in order to get my average cost down. Where my average unit cost is minimized, that point is my minimum efficient scale. Now, we can illustrate that with this graphic. Here we see average cost curves for both traditional and additive manufacturing. The traditional cost curve is a classic. Because we have high investment in equipment and tooling, those low unit production volumes are very expensive. But as we produce, the superior variable cost economics of traditional manufacturing methods drive down that average cost to a point where at high volumes, unit cost is very low. Additive manufacturing is different. The research tells us that our ability to eliminate high equipment investments and to reduce or eliminate tooling costs leads us to a very flat cost curve that is driven solely by the variable unit cost of production. Now, where those two curves cross, the break even point appears. But at lower unit volume, certainly, we have an opportunity to explore additive manufacturing's applicability, which allows us, in some cases, to spread production. Now let's consider the relationship between capital and scope, where the impact of additive manufacturing may be even greater. There's two reasons for that. First, additive manufacturing can sequentially produce products that are very different from one another. So we like to say you can produce both the sword and a plowshare sequentially, instead of having dedicated equipment for swords and dedicated equipment for plowshares. Two is, as we saw at Youngstown, we have the opportunity to produce products that we simply couldn't make any other way, or at least it would be extremely difficult to manufacture using other technologies. As a result, we have the opportunity to innovate on our products. There's some natural implications that fall out of our ability to manage this trade-off between capital, scale and scope. Let's think about capital and scale first. We know that additive manufacturing offers us at least the opportunity to reduce minimum efficient scale, and that when minimum efficient scale falls, production wants to scatter in order to locate closer to demand. That leaves us with the ability to evolve our supply chains using additive manufacturing. On the other hand, we can instead choose to focus on the superior scope and flexibility additive manufacturing offers in order to evolve our products. Looking at this trade-off, in these two axis, we see that there are then four possible ways, or paths that we could follow, in order to deliver value with additive manufacturing inside our business. Along path one, stasis, we could essentially stay put, altering neither our products nor our supply chains in pursuit of additional value using additive manufacturing. Along path two, supply chain innovation, we have the opportunity to improve performance in the way that we deliver our products, even if we don't change them using additive manufacturing. Along path three, product evolution, we focus on that superior scope and flexibility for additive manufacturing to create higher performing, more innovative products. And of course then we're left with path four, business model evolution and the opportunity to use both the benefits of supply chain evolution and product evolution in order to create entirely new business models. In the next several segments, we're going to delve deeply into each of these quadrants and explore the applications of additive manufacturing as they apply to businesses, in general, in order to deliver value.