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Michael Doyle

Survival of the Fittest for Manufacturers Requires Technology Adoption

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“Let the Strongest Live, and the Weakest Die”

Although Charles Darwin’s famous quote about natural selection from The Origin of Species (pub. 1859) was referring to biological systems, this basic principle of natural selection is in some form the driving principle of all systems contending for selection.

By strongest, Darwin wasn’t referring to physical strength – how could a “still around” field mouse be physically stronger than the “long gone” mastodon fossil that he discovered?

Rather, Darwin was referring to strength that comes from having superior traits that foster ongoing adaptation to a constantly changing environment.

Superior Traits Come From Adaptability

To understand the relationship between businesses, technology, and adaptability, let’s look at a business and technology with which most of us are familiar: Netflix and streaming entertainment video.

Founded in 1997, Netflix was in the business of monthly DVD rental subscriptions by postal mail.  Customers would load up a queue of desired movies, receive a DVD by mail, watch it, mail it back, and in a couple days get the next DVD on their list.

In early 2007 Netflix pivoted its business to favor Internet streaming video, even though streaming video on the Internet was painfully slow at the time. Many people (including me) thought they were crazy to favor streaming video over their successful DVD rental-by-mail business.

Netflix had the superior trait to see where entertainment video was going, and it paid off big.  When they pivoted in 2007, Netflix annual revenue was $997 million and its stock was trading around $3/share. A decade later, the company’s annual revenue is almost $9 billion and its stock price has grown over 50-fold to about $155/share.

So, what does this have to with manufacturing?

Pivoting Is Only Easy in Hindsight

To answer that question, let me tell you about the two days I spent at the Society of Manufacturing Engineer’s (SME) EASTEC conference in Springfield, Massachusetts. With over 700 exhibitors spread across three buildings containing about 200,000 square feet this show was BIG!

Most of the show was physically dominated by giant machines for subtractive technologies: laser cutters, waterjet cutters, 5-axis mills, band saws, thread-making tools, and on … and on … and on.

Only 17 vendors were categorized as additive manufacturing; that’s less than 2.5% of vendors for a technology that manufacturing visionaries claim is going to turn the industry on its head. (see A Third Industrial Revolution and Is 3D Printing the Next Industrial Revolution?)

Why?

Because the industry is still focused on automation.  In fact, Patricia Buckley, Managing Director, Economics at Deloitte Services, LP, mentioned in her keynote address that manufacturing productivity in the US in 2016 increased by 20%, while the manufacturing labor force increased only 8%. Such a disparity is explained by only one word: automation.

Over 60 automation vendors, plus another 31 demonstrating robots (more than 5 times the number of Additive Manufacturing vendors) exhibited at EASTEC. But it’s important to recognize that automation and robot technology are no longer on the horizon … they are already here!

Businesses that adapt to more automation may think they are exhibiting superior traits, but they are not; they are exhibiting survival traits.

The next opportunity to demonstrate superior traits in manufacturing is, in my opinion, intertwined with additive manufacturing. Sure, it has many limitations and will cause short-term pain, as did Netflix’s adoption of streaming video. But the many benefits are sure to positively impact the bottom line in the long run.

Manufacturers Adapting To Additive Technologies

The pivot is already happening for many large organizations in different ways. For example:

  • GE received the first FAA approval for a 3D printed part in a jet engine in April 2015. By late 2016 GE used their technology leadership to form GE Additive, a new GE business supplying 3D machines, materials, and related services.
  • Boeing and a research partner printed the largest 3D solid item (so far) in the summer of 2016, according to the Guinness Book of World Records: a tool that will secure Boeing’s new 777x passenger jet’s composite wing skin for drilling and machining before assembly.
  • Caterpillar announced the grand opening of their 3D Printing & Innovation Accelerator in Illinois, which includes an innovation accelerator, an additive manufacturing factory, and a Cat® MicroFoundry.

Why Aren’t All Manufacturers Adapting to Additive?

Part of the “slowing” factors in manufacturing technology adoption is the substantial investment in heavy subtractive equipment.

For example, if a business purchases a metal fabrication machine for $500,000, it expenses that investment based on a depreciation schedule. In the United States, the Internal Revenue System Publication 946 dictates depreciation schedules, and it specifies a 12 year depreciation recovery period for metal fabrication equipment.

That means about $42k/year is expensed for this equipment. And it is the expense – not the cost – that businesses build their budgets on. If a business purchased such a machine 4 years ago, it would be a tough business case to re-tool their manufacturing operations given that about $0.33 million in depreciation expense remains. What would they do with that albatross around their neck?

Of course, a machine is only one small portion of manufacturing cost. There is also material expense, labor expense, direct overhead expense, indirect overhead expense, etc. And then there’s the operational processes and new skills needed. But businesses with superior traits figure out how to chart a course to that next horizon while maintaining profitability.

Additive Manufacturing Adoption Preparation

If we believe that the future is additive manufacturing (and I certainly do), but we’re not ready to implement the technology yet, then we need to start by monitoring the cost factors – not just the technology – so we can recognize the right time to pivot.

Your basic cost comparison today might look something like this:

Cost Factors Subtractive Additive
Labor Higher Lower
Energy Consumption Lower Higher
Material Cost Lower Higher
Factory Footprint for Machines & Materials Higher Lower

 
Watch these factors closely. In 10 years this table will not look the same. But don’t wait until then to begin your pivot!

Want to Learn More?

To learn more about the costs of subtractive vs additive manufacturing, check out these resources:

To learn how aPriori helps manufacturers design and produce more cost-effective products today, download our whitepaper, What Will My Design Cost to Produce?

 

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