Additive Manufacturing and Losing Opportunity Costs
Today, we are excited to announce our investment in Markforged, they are a great team that is poised to make the most of the potential offered by 3D printing, which we should really call Additive Manufacturing (AM).
When we think of manufacturing, we tend to envision massive factories operating at mega-scale efficiencies. Outsiders assume that the most expensive aspects of manufacturing are scale and volume. It turns out that much of the cost of manufacturing occurs before the assembly line is even switched on.
One academic review found that ‘manufacturing overheads’ can contribute 25% — 40% of the cost of a product. And a study conducted by the US Department of Commerce found that in building a simple plastic part the metal mold can sometimes contribute 80% of the total cost. True, that mold can be amortized over millions of units, but it is clear that the upfront costs of manufacturing are significant.
It turns out that some of the most important applications for 3D printing today are in reducing these upfront costs. These upfront costs are highly distributed, with a little bit here and a little bit there. Manufacturing a high volume part using traditional techniques can require building a mold or tools, crafting prototypes, and laying out patterns. Sometimes the most complex part of a manufacturing line can be the little jigs and fixtures needed to attach raw materials to the machine used to shape it. And since these processes are distributed, their full cost may not even be apparent to the people writing the checks for them.
Many of these steps are incredibly well suited to today’s AM techniques. Molds, patterns, and all those jigs and fixtures tend to have complex shapes, but are required in low-volumes. They can be designed using the same software tools used to design the end-parts, and then directly printed out. And since they are saved in software, they can be recreated with little trouble in the future to meet unexpected demand. One of the unspoken costs of molds and other tools is that once built, the builder has to warehouse them for the future. This is a surprisingly painful process for companies that otherwise practice highly efficient inventory management.
A potentially far more important benefit of using AM is the ability to adapt to change. Lead times for manufactured products can be significant. It can take many months to build a mold. What happens when in the midst of that period, something changes in the market? Maybe a competitor launches a ‘mini’ form factor or consumers decide they prefer circles to the squares the company was planning to build. If the company sticks with the original part, their product may lose share to the competitor or fail to take off with the consumer. Alternatively, if they delay the product to build a new mold, they may miss the market entirely.
There are real benefits from using AM techniques to do rapid prototyping. The ability to create new molds and fixtures using 3D printing can be substantial, even if their full benefits are not always clear upfront.
We are already seeing this in the market. Wohlers Associates, an analyst firm, says that 33% of companies currently using AM processes use it for finished goods, while 46% use it for a whole range of overhead costs from prototyping to fit and assembly (i.e. molds and fixtures). And we are still in very early stages of this. That Commerce Department report mentioned above estimates that US manufacturing produced $1.9 trillion (with a ‘T) of goods with AM contributing only $367 million (with a ‘m’), which works out to something like 0.02% of the total. If we use an assumption of overhead costing 25% of end-products, and roughly 50% of AM being used for overhead applications, it works out to 0.04% penetration.
With all the flexibility that AM offers in rapid prototyping and advances in time-to-market, it seems pretty clear that the potential for growth of AM techniques is immense. Admittedly, it may take some time for the industry to mature and for manufacturers to get comfortable with 3D printing and accountants to fully reconcile the opportunity costs. But at the same time, the importance of having a highly agile supply chain has become incredibly important to manufacturers. Companies that build products need to adapt to constantly changing markets. Additive manufacturing can deliver this. Even if the full science fiction vision of 3D printing never happens, the potential for immense change in manufacturing can deliver huge benefits, and do so in a much more real world timeframe.
Which brings us to Markforged. They are best known for their ability to use composite and metal materials in their printers, which already sets them apart from most in the field. But what really caught our attention was the rapid cycling of parts that their customers were reporting. Markforged’s customers were able to reduce turnaround times for some parts from months to weeks. This was attributed not only to printing speeds of their machines, but also to the tuning and software that is very much a core competency of the company. We see Markforged as building a modern platform that takes full advantage of all the materials expertise needed for additive manufacturing, but also software, learning and a deep understanding of the needs of their customers, even if those needs are not fully obvious to the outside world. We look forward to seeing what they will build.
