The Peculiar Economics of 3D Printing
Most new technologies, when they are launched, arrive with a lot of hype. While 3D printing fits the business model for customized products, it is not yet cost effective in a commercial manufacturing sector which requires mass production.
Klaus Schwab, the executive director and founder of the World Economic Forum, forecasts that, as part of the Fourth Industrial Revolution, smart manufacturing will converge with synthetic biology and AI to have a transformational impact on the economy and our daily lives. Smart manufacturing is a form of advanced industrial manufacturing that integrates innovative technologies such as 3D printing, robotics, and the Internet of Things (IoT) to provide data analytics in real time.
In traditional manufacturing, large corporations and conglomerates rely on expensive production equipment to mass-produce standardized parts and products—a business model that typically utilizes offshore production and extensive supply chains. Traditional manufacturing systems have high fixed costs and low variable costs, but mass-production enables economies of scale. Although robotics and data analytics are used more frequently today in manufacturing to increase efficiency, despite all of the hype surrounding 3D printing it has yet to replace traditional manufacturing.
The role of smart manufacturing and 3D printing in future economies and wider societies could evolve in a number of possible ways. Will smart manufacturing become disruptive? Or will another type of smart factory prevail?
3D printing and the maker movement
3D printing is the process by which a three-dimensional solid object is made from a digital file. In fabrication laboratories (fablabs), do-it-yourself individuals and small independent companies use software such as CAD-CAM to print 3D customized products. Computer-aided design (CAD) assists with product design and documents the design process through creation, modification, and optimization, while computer-aided manufacturing (CAM) is the computer-controlled machinery that automates the manufacturing process.
Fablabs are already springing up across the US. In my hometown of Durham, NC, the city library system has leased several spaces to sell used books and hold maker classes. At Duke University, fablabs are strategically placed around campus to enable students to make their own products. The medical school even has a 3D printer capable of using three different materials to produce human body parts that medical students can use for training during cadaver shortages.
This trend has gained international momentum, too. According to Sherry Lassiter, who runs the Fab Foundation at MIT, since 2003, the number of fablabs globally has doubled every year-and-a-half in line with Moore’s Law—the principle that computers will double their speed and capacity every couple of years. Neil Gershenfeld of MIT argues that the next big step within the maker movement will be self-assembly based on biological processes.
3D printing is referred to as “additive manufacturing” because it applies successive layers of material to form a predesigned shape. Traditional manufacturing, on the other hand, uses a subtractive process which involves cutting materials away from a solid block. Using recycled materials and creating less waste, 3D printing is perceived as more sustainable, but that is somewhat misleading—depending on the product, 3D printing does produce waste materials that require disposal or recycling.
On-demand printing offers businesses numerous advantages. It prevents the build-up of unwanted inventory and the cost of storage in warehouses, and custom orders can eliminate the middleman and reduce shipping costs and energy consumption. Designers also have a higher degree of creative flexibility and can accommodate last minute modifications, and in economies of scope, printing on-demand can build value because its range of products can be more flexible.
But while the maker movement fills a niche for customized products, it is not a solution for all business models. Fablabs and 3D printing shops are only able to produce items in small quantities and are not able to compete with faster and more efficient mass production.
3D printing and smart manufacturing
In 2010, China surpassed the United States as the largest manufacturing country. But neither China nor the United States is currently leading the way in advanced manufacturing. According to a 2012 report by the US National Science and Technology Council, the top three countries were Germany, South Korea, and Japan, which all maintain intensive R&D manufacturing sectors and positive trade balances. The United States is fourth, followed by the United Kingdom, Canada, and Australia.
In 2012, Germany began its own smart manufacturing initiative referred to as Industry 4.0. Built on the past three industrial revolutions, Industry 4.0 utilizes cyberphysical systems to create physical objects from digital technologies such as 3D printing, data analytics, and robotics. Germany’s success is attributed to former Chancellor Angela Merkel’s full support for Industry 4.0 applications and the hundreds of German companies—especially those in the automotive industry—which have invested billions of dollars in R&D.
Smart manufacturing’s convergence of technologies is increasing manufacturing efficiency. Early adopters of 3D printing include the jewelry, medical, and dental industries. More recently, the construction, clothing, automotive, and aerospace industries have all begun integrating it into the manufacturing process. An advantage of smart manufacturing is that if a customized screw or bolt is missing and you do not have CAD files for printing instructions, it is possible to use a 3D scanner to obtain a digital image and create a file for 3D printing. With the ability to print locally, production and transportation costs are both reduced by shorter supply chains and machines closer to the customers, respectively.
Although smart manufacturing provides numerous benefits, limitations for some business models have prevented its widespread adoption. For industrial applications, 3D printing has a limited ability to accommodate a variety of materials and speed is traded-off against resolution. And while two-dimensional print jobs are broken down into pixels, three-dimensional print jobs use voxels (the 3D equivalent), which are more complicated and slower for printing metals.
Smart manufacturing using 3D printing has low fixed costs, but high variable costs and it is therefore not suitable for economies of scale. Since 99 percent of all manufactured parts are standardized, 3D printing is not optimal for mass production and is unlikely to revolutionize the manufacturing sector.
Will pan-industrials provide a solution?
In The Pan-Industrial Revolution: How New Manufacturing Titans Will Transform the World, Richard D’Aveni, a business strategist at Dartmouth’s Tuck School of Business, argues that new platforms built around additive manufacturing—“pan-industrials” with new ways to create value—will eventually dominate the global economy because they can provide the advantages of both traditional manufacturing and 3D printing—economies of scale and scope.
Saul Zimet
While economies of scale add value through lower mass-production costs, economies of scope build value through flexibility. Using downloaded design files, 3D printers can produce a diverse range of products for numerous industries. Currently, post-production costs make up as much as 70 percent of the total cost of commercial 3D printing. To add further value to pan-industrials, production facilities utilizing banks of specialized automated robotic arms can reduce time and costs in post-production.
The development of this new manufacturing platform would enable pan-industrials to make parts and products for multiple industries affordably. Pan-industrials provide an innovative way to maximize the trade-off between fixed costs and customized products. Local production using relatively inexpensive equipment will also shorten the supply chain, lower production and transportation costs, and reduce carbon emissions.
3D printed housing
Several factors indicate that traditional housing will not be sufficient to meet future global needs. It is expensive, labor-intensive, and takes months to complete. And, along with the transportation industry, the housing industry is one the largest emitters of greenhouse gases. By 2050, demographic experts project that the world’s population will increase from roughly seven billion to nine billion, and that a higher percentage of inhabitants will live in urban areas.
Building professionals have therefore been exploring innovative housing construction methods to adapt to changing market and geographical conditions. For centuries, builders have offered prefabricated housing, which is manufactured off-site in advance and delivered in standardized components. To adequately support humans in the future, both on Earth and in possible extraterrestrial habitats, further innovation will be needed to meet growing demand.
3D-printed and prefab housing are not mutually exclusive technologies. The open source website Wikihouse offers DIY prefabricated 3D printing which enables aspiring homebuilders with access to a 3D printer and a building site to design their own homes. Similar to a modular LEGO system, homebuilders download and print various components and then assemble them. Although the whole building process requires minimal skills and training, it is unlikely that most people will choose to print modular components and assemble their own homes, and paying professional installers would offset any savings.
Contour Crafting is a prototype method of 3D printing developed by Behrokh Khoshnevis, a professor of Industrial Engineering at the University of Southern California. It offers a streamlined process for construction, from the acquisition of raw materials to the final assembly of the product using CAD-CAM software. At the building site, robotic arms with nozzles move horizontally on two tracks, and in a process similar to decorating a cake, each nozzle deposits fast-drying, fiber-reinforced concrete with the texture of toothpaste in layers two to three inches deep. The robotic arms can place preprinted beams over spaces for windows, doors, and as supports for a second story. Khoshnevis has also developed software to embed electrical, plumbing, and AC/heating ducts during the 3D printing process.
One of the benefits of Contour Crafting is that structures are not limited to traditional rectangular shapes, and can include customized designs such as curved walls. CAD-CAM construction can also design stronger structures at no added cost to better withstand seismic activity. Contour Crafting-tested walls have 10,000PSI (pounds per square inch) of strength compared to 3,000PSI for traditional walls. Because the per-unit cost of 3D printed housing is relatively low, builders are investigating applications for low-income housing and emergency shelters. Using the 3D printing device Khoshnevis designed, the Chinese builder WinSun Decoration Design Engineering was able to build 10 prefabricated 726 sq. ft. houses in a single day for $5,000 per unit.
At the South by Southwest festival in Austin, Texas, ICON, a Texas-based robotics startup, displayed an inhabitable 650-square-foot 3D printed home which sells for roughly $10,000 and can be fully constructed in less than a day using ICON’s Vulcan 3D printer. ICON has several goals for the future. They want to reduce the price of printing these homes to around $4,000, and help reduce the costs of dispatching crews to add finishing touches by developing a fleet of robots and drones to perform tasks such as installing windows and painting. But the final cost will vary among regions, and finished 3D printed homes will also require land, doors, windows, heating and AC, hot water heaters, paint, porches, sidewalks, and driveways.
Could the mortgage industry pass a bank stress test?
NASA and wealthy space explorers interested in colonizing other planets are also interested in 3D printing for housing since it is cost-prohibitive to transport building supplies from Earth. While 3D printing may provide a solution for building space colonies, here on Earth it could lead to unexpected economic consequences if a financial market crash occurs.
The printing press led to increased literacy, more accurate news, and increased threats to government and religious authority, and futurist Jeffrey Joslin argues that these developments helped to make democracy and capitalism possible. But while the printing press gave birth to capitalism, the 3D printer could be the invention that kills it.
Creative destruction—the replacement of old ways of doing things with new ones—is built into the capitalist economic system. But while the planned obsolescence for most products and services is typically a decade or less, for housing it can be 50–100 years or more. Even if 3D printing reduces the costs of building homes by just 50 percent, could the finance industry recover from the financial stress that 3D printed housing might cause?
Because the costs of 3D printed construction are dramatically lower than those required for traditional construction, homeowners and the mortgage industry could lose trillions of dollars from the reduction in traditional home values. In some cases, mortgage holders with traditional homes could lose so much equity that they would owe more than their home is worth. Furthermore, if builders can construct homes via 3D printing for much less, it is unlikely that homebuyers will be willing to pay more for traditional homes.
To ensure that the economy does not collapse with the market saturation of 3D-printed housing, the government and the finance industry will need to take proactive steps. One possible instrument is insurance. In the automobile industry, buyers can purchase GAP Insurance for protection from accidents, which covers the difference between the actual value of a vehicle and the balance still owed on the financing. Policy officials and the financial industry could develop a similar instrument for the housing industry which includes a maximum loss limit and protects consumers and the finance industry.
It is important for society to understand the economics behind this major transformational shift in the manufacturing industry. In the event that 3D-printed housing starts moving towards market saturation and proactive measures are not taken to stabilize the housing market, it is uncertain whether or not the global economy could rebound.
Conclusion
Most new technologies, when they are launched, arrive with a lot of hype. While 3D printing fits the business model for customized products, it is not yet cost effective in a commercial manufacturing sector which requires mass production. In order for 3D printing to become disruptive, it will require an innovative platform that can provide a solution for both business models. So, traditional manufacturing is likely to continue to dominate manufacturing for the foreseeable future.
While 3D printed housing is economically feasible, it has so far failed to disrupt this business sector. A number of pilot projects for low-income and emergency housing will help develop a proof-of-concept and provide a case study for what does and does not work. It is a good idea to work through their implications before they are adopted, because without the required care and foresight, we risk the possibility of financial disaster.
