Part 8: Will You Soon Be Able To Make Amazon's Kindle At Home? on Astini News

In the first six articles of this series, Why Amazon Can't Make A Kindle In The USA, I explained how companies chasing short-run financial gains through outsourcing in Asia have devastated large sections of industry in the USA and other developed countries.

In part 7, I explained how even the short-run economics of outsourcing are being transformed by rising costs in Asia and the extraordinary risks of an extended supply chain that is far from the ultimate customer. The "outsourcing dividend" is long gone, even though companies still chase it.

Now, in an excellent article in strategy+business, A Strategist's Guide to Digital Fabrication, Tom Igoe and Catarina Mota explain how the economics of manufacturing are being further disrupted by rapid advances in manufacturing technology which point the way toward a decentralized, more customer-centric "maker".

The revolution in how we make things

For example:

At a research meeting in late 2010, a primatologist studying monkey genetics took a tour of a university's digital fabrication shop. She mentioned that her field research had stalled because a specialized plastic comb, used in DNA analysis of organic samples, had broken. The primatologist had exhausted her research budget and couldn't afford a new one, but she happened to be carrying the old comb with her. One of the students in the shop, an architect by training, asked to borrow it. He captured its outline with a desktop scanner, and took a piece of scrap acrylic from a shelf. Booting up a laptop attached to a laser cutter, he casually asked, "How many do you want?"

20^th Century management was built on economies of scale. To make a single unit of a thing typically cost a lot more to produce than 10,000 would. The price per unit goes down even more as the numbers increase.

In the foreign outsourcing of manufacturing, managers chased these economies of scale, often overlooking the additional costs of transport, inventory management, quality control, sales, marketing and distribution of large production runs, as well the risks involved in such extended supply chains. They paid scant attention to the long-run costs of losing knowledge and the opportunity to learn. They also ignored what Toyota and other firms had learned, namely that even with conventional manufacturing, short production runs could often be more efficient than long production runs, when you include the total costs of actually making a sale.

Now the economics of large-scale production runs carried out overseas are about to be further undermined by the possibility of making, selling and delivering millions of manufactured items one unit at a time, right next to the customer.

Igoe and Mota point out that digital manufacturing is beginning to do to manufacturing what the Internet has done to information-based goods and services. Just as video went from a handful of broadcast networks to millions of producers on YouTube within a decade, a massive transition from centralized production to a "maker culture" of dispersed manufacturing innovation is under way today.

As operations, product development, and distribution processes evolve under the influence of this new disruptive technology, manufacturing innovation will further expand from the chief technology officer's purview to that of the consumer, with a massive impact on the business models of today's manufacturers and the lives of customers.

Two kinds of tools

Igoe and Mota note that digital fabrication devices fall into two categories.

• programmable subtractive tools, which carve shapes from raw materials. These include laser cutters (which cut flat sheets of wood, acrylic, metal, cardboard, and other light materials), computer numerical control (CNC) routers and milling machines (which use drills to produce three-dimensional shapes), and cutters that use plasma or water jets to shape material.
• additive tools, which are primarily computer-controlled 3-D printers that build objects layer by layer, in a process known as fused deposition modeling. They work with a wide variety of materials: thermoplastics, ceramics, resins, glass, and powdered metals. Technically known as "additive rapid manufacturing" devices, 3-D printers also use lasers or electron beams to selectively shape the source material into its final form. Because additive devices require little setup time, they make possible the production of any quantity at the same cost per unit, and also allow easy, rapid switching between products. In some cases, a 3-D printer can fabricate in a single piece an object that would otherwise have to be manufactured in several parts and then assembled. And because it composes objects bit by bit, instead of carving them from larger blocks, additive manufacturing considerably reduces the waste of materials.

Prices plummet while capabilities advance

Igoe and Mota point out that the price of additive technologies is plunging exponentially while capabilities are growing, in a fashion similar to Moore's Law in computing. In 2001, the cheapest 3-D printer was priced at $45,000. Today a professional 3-D printer costs less than $10,000, and a desktop do-it-yourself kit costs less than $1,500.

Thus far, no digital fabrication device, professional or personal, can efficiently produce a complex multi-material product such as a Kindle or an iPhone. Nonetheless, even these early forms of digital fabrication will be highly disruptive to conventional manufacturing practices.

Lessons for Large Manufacturers

Igoe and Mota have the following suggestions for manufacturers:

• Prepare now for the capabilities you'll need when some of your products are digitally fabricated. By 2020 if not sooner, every auto dealership and home improvement retailer will have a backroom production shop printing out parts and tools as needed. Manufacturers that figure out how to make their wares out of printable composites, investing now in the requisite changes in materials, could have a considerable advantage.

• Establish a hybrid product line that mixes complementary mass-production and individual-production items. For some objects, digital fabrication will allow you to shorten product life cycles and make rapid improvements.

• Counter reverse engineering with open innovation. Digital fabrication will inevitably enable amateur enthusiasts to knock off and alter commercial products in their garages. Manufacturers now face a choice between engaging in eternal court battles with their own customers or assimilating this new culture of sharing and remixing it into their design and production processes.

• Help in the development of new and better materials for fabrication. Independent fabricators are eager for materials, and they are experimenting fervently. Forward-thinking manufacturers can form powerful partnerships by making their scrap materials available for experimentation.

Will you soon be able to make a Kindle at home?

In one sense, to ask whether you will soon be able to make Amazon's Kindle or Apple's iPod at home with this new technology (you won't) is to ask the wrong question. This is like people asking when they discovered the mechanical power whether it would be possible to make a mechanical horse and cart. The result of that kind of thinking was an impractical device like this, conceived by the American inventor Oliver Evans in 1794.

It took more than a hundred years before we thought through the possibilities of mechanical power and developed comfortable and convenient transportation devices (cars) that were unlike any horse and cart we had ever seen.

Similarly, with digital manufacture, the important question is not whether we could make a Kindle in this fashion, but rather: what can we do with this new technology that we couldn't even dream of doing before?

What are the new possibilities?

Taken as a whole, digital fabrication creates whole new possibilities for the manufacturing sector that has been devastated by foreign outsourcing. As the economics of foreign downsourcing collapse, the potential of a distributed manufacturing ecosystem to rebuild lost capacity is significant.

The possibility to have large numbers of geographically dispersed "factories", of having manufacturing in close proximity to local customers, of getting direct feedback from customers and making changes on the spot, of customizing products on demand, of making drastic reduction or elimination of inventory and of reducing or even eliminating transport costs, will dramatically disrupt the design, finance, and management of the supply chain.

• Transforming the supply chain: The original rationale for foreign outsourcing was cheap labor. Changes in manufacturing processes have reduced the labor content to a small proportion of the total cost of manufacture and foreign labor costs are rapidly rising. Most of the cost of those "little do-hickeys" that US manufacturers lost interest in making lies in inventory, distribution, transportation and quality control. The ability to reduce or eliminate major aspects of those costs will further undermine the economics of foreign outsourcing even these little do-hickeys.
• Taking back manufacturing capability: Just as huge sections of manufacturing were lost to Asia by a successive process of Asian firms nibbling away at capabilities, initially at the low end of manufacture, like plastic toys, and gradually working up to more complicated uses, so the return of manufacturing is unlikely to take place by spectacular high-cost politician-ribbon-cutting high-risk investments in factories at the high end, as has happened in solar energy at Solyndra. Instead, manufacturing is likely to return by working from the low end, segment by segment, rebuilding the capability and expertise to make things, and gradually moving up the chain towards the high end.

• Customizing products: The possibility of customizing products on the spot will transform the marketplace. We will no longer see the toy store or the jewelry store, or the shoe store being the last step in a 12,000 mile supply chain, with all the problems of having the right product at the right time for the particular customer. Now the physical store will be a miniature factory, where the child designs and manufactures his or her own toy on the spot exactly to taste. The same with shoes, jewelry and other basic products.
• Spare parts: There are huge costs involved in maintaining large varieties of spare parts. Why bother with all that when you can manufacture the part on the spot with a digital printer?
• Medical manufacture: It wasn't so long ago that a dentist had to send a crown molding away to a specialized factory and the patient had to return in a couple of weeks for the finished product. Now the job is done on the spot with a 3D printer and the patient gets the job done with one visit. In future, all forms of one-off production like dental work or orthopedic implants will be done on the spot.
• Exploiting time as a competitive weapon: Just as a Kindle enables readers to buy and and read a book instantly, 3D printing will enable customers to make things instantly, which they would otherwise have to go to the store to buy. This will help put the forgotten competitive weapon – time—back on the management agenda.

• Enhancing innovation: The potential to experiment very cheaply in close proximity to customers offers huge promise for enhanced innovation. For example, Thogus Products Company is a company that was founded in 1950 and is headquartered in the heart of the "rust belt" near Cleveland, Ohio. A few years back, the CEO, Matt Hlavin, saw that the firm wouldn't be able to sustain itself on commodity work in high volumes. As a result, he decided to get out of the commodity business and instead focus on developing innovative solutions for metal to plastic conversion, working closely with the large chemical companies, specializing in highly engineered materials, with custom solutions in small volumes. It uses rapid prototyping and tooling technologies to take the cost out of the development cycle and expedite development. Hlavin sees the firm as an incubator of manufacturing ideas. The focus is on the next greatest invention, the next greatest idea. Hlavin says, "We are creating an environment where anyone can come in and sit down with our people and together develop the concept and manufacture a part for them in a day or two for a minimal fee."

To read the rest of the articles in this series:

Part 1: Why Amazon Can't Make A Kindle In The USA

Part 2: Does it really matter whether Amazon can make a Kindle in the USA?

Part 3: Amazon & Kindle: It's not just manufacturing!

Part 4: Amazon & Kindle: Some good news (finally)!

Part 5: Amazon & Kindle: Is outsourcing a national security issue?

Part 6: Amazon & Kindle: The video

Part 7: Amazon & Kindle: The end of the road for outsourcing?

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Steve Denning's most recent book is: The Leader's Guide to Radical Management (Jossey-Bass, 2010).

Follow Steve Denning on Twitter @stevedenning

And join the Jossey-Bass webinar series, "Why Management Still Matters": Sep 22-Oct 20, 2011. To register, go here and use discount code JBMSD.