3D Printing is a revolution that changes two important economic equations – insourcing/outsourcing, and the globalization/localization equation.
It tips the balance between insourcing and outsourcing of manufacturing in favor of insourcing. And it tips the balance between globalization and localization in favor of localization.
In the pre-3D Printer era, outsourcing – the transfer of a number of business activities to third parties either at home or abroad – allowed companies to improve efficiency, cut costs, speed up product development, and focus on their “core competencies.” It helped American companies address the destructive forces of globalization; that is, the intensification of competition and the price and profit erosion that followed it.
For some companies, outsourcing was the difference between staying in business or throwing in the towel.
But outsourcing had a “side effect:” disintegration and fragmentation of the supply chain. This invited new competitors into the industry, undermining pricing power and profitability of companies pursuing this strategy.
In the PC industry, for instance, outsourcing invited the entry of Chinese competitors like Lenovo, which ate Hewlett-Packard’s lunch—a company which had been outsourcing aggressively its PC manufacturing.
There’s a simple reason for this side effect: outsourcing is feasible only if each activity can be separated from other supply chain activities.
Manufacturing, for instance, can be outsourced only if it can be separated from product development, branding, marketing, distribution, and after sales services. The same is true when it comes to outsourcing marketing or distribution, and so on.
This means that as more and more activities are outsourced, the supply chain turns from a single integrated process – performed within the boundaries of traditional corporations – to a fragmented and disintegrated process, a collection of separate and disjointed activities, performed across several independent subcontractors.
That’s what makes entry of new competitors into the industry easier, resulting in intensified competition, shortening product cycles, and squeezing return on invested capital.
In the 3D Printer era, most of the advantages of outsourcing are diminished or even eliminated altogether, as additive manufacturing allows these companies to perform all these activities in house when needed and as needed.
At the same time, additive manufacturing helps companies maintain and reinforce control of the entire value chain, avoiding the side effects of outsourcing.
Add the transportation cost savings and the benefits of customization, and bingo! Outsourcing is history, and jobs come back to the US from Mexico, India, China, etc. That’s a blow to the globalization of manufacturing.
To be fair, additive manufacturing is a slow process with constant returns to scale, no match for the speed and the scale of traditional manufacturing. But expect that to change, as 3D becomes main stream and money pours into the 3D Printer technology to make these printers faster – the case with conventional printers.
And, provided that politicians do not kill this trend with unnecessary regulations.