We see all these concepts at work today. For example, Foxconn, a leading contract manufacturer of consumer electronics in Shenzhen, China, combines scale and labor cost advantages by employing hundreds of thousands of workers at more than a dozen factories crammed into a three square kilometer complex known as Foxconn City. And pursuit of scale economies continues in shipping with Maersk Group’s launch in July 2013 of the largest container ship to date, which can carry 18,000 containers.
Like the experience curve, scale economies vary for different types of products, affecting the significance of labor costs. Consider Intel’s semiconductor chips, which continue to follow the “law” predicted by the company’s cofounder. A “wafer fab,” which manufactures the initial silicon chip, costs billions of dollars to build, and most of these plants are located in developed countries because the capital intensity and desire to protect intellectual property far outweigh the higher labor costs. Sewing factories, in contrast, exhibit limited scale economies, because a larger factory would just have more operators sitting behind more identical machines. To produce a steep scale curve, incremental volume has to enable a superior process technology that would be uneconomical at smaller volumes. Sewing doesn’t offer such an option; therefore, most sewing factories are small and found in low-labor-cost countries.
Because the best scenario varies by product, manufacturing strategists across all industries constantly examine the trade-offs of scale economies, labor arbitrage, and transportation costs in search of the lowest total landed cost. And the optimal answer changes over time as currency, wage rates, and production technologies evolve. The advent of 3D printing, with fundamentally different trade-offs, thus demands a fresh analysis.
Paradigm Shift vs. Hobbyist
The argument for displacing Chinese workers stems from a questionable assumption that 3D printing eliminates the need to seek economies of scale. However, even though 3D printing enables small-scale production at the point of need—a single plastic part could be printed in a home or office—traditional technologies such as injection molding and casting still offer scale economies through mass production.
Furthermore, regardless of how cheap a 3D printer becomes, a manufacturing plant will continue to offer scale economies in the raw materials for printing the artifact. Digital printers typically consume plastic costing roughly 84 cents per cubic inch—dramatically more than the cost of a finished plastic product produced in a typical factory halfway around the world. Brooklyn-based MakerBot Industries LLC offers a one-kilogram spool of ABS plastic for $48, whereas an injection molding plant buys plastic resin in tanker car quantities for a fraction of the price. Home consumers will never procure plastic for their 3D printer at a truly competitive cost. Homemade items offer a nice hobby, but not a practical alternative to mass-produced goods.
That said, although our forecast for 3D printing does not suggest a seismic shift in the fundamental paradigms of manufacturing, it can still have a profound effect on the production location and business models for certain artifacts. For example, San Francisco–based Moddler LLC serves everyone from the casual hobbyist to medical device manufacturers to movie studios by producing customer-designed objects using a $250,000 3D printer. Though the company is initially producing only plastic parts, founder John Vegher envisions making items from glass, metal, and ceramics. Staples has made a foray into this new form of printing in Europe with equipment from Mcor Technologies Ltd., which prints by coloring, cutting, and gluing layers of paper into a solid, wood-like object.
Proponents of 3D printing should focus on how additive manufacturing could provide value in certain niches. For example, the European Aeronautic Defense and Space Company NV has already used 3D printing to manufacture remotely controlled aerial vehicles that provide greater strength at a lower weight than the company had been able to achieve with any other manufacturing method to date, owing to its ability to print the entire wing instead of assembling components. Building all the parts simultaneously—or transforming multiple parts into a single part—results in a final assembly that is less susceptible to errors and that sometimes eliminates the assembly step altogether.