Nanalyze

The “On-Demand Manufacturing” Business Model

In a recent piece on Some of the Latest Trends in Artificial Intelligence, we noted that innovation lies not only in the technology itself but also in the business models used to deploy the technology. The same holds true for 3D printing. In our last piece on the topic, we noted that there are at least 50 companies building metal 3D printers. In the case of General Electric, they were using 3D printing to such an extent that they actually went out and purchased the two companies they were buying machines from so the whole thing could be controlled in-house. Companies like SmileDirectClub – which recently announced plans for an IPO – have developed an entire business around 3D printing custom teeth alignment products. And recently, we’ve noticed the emergence of something that’s being called “on-demand manufacturing.”

3D Printing So Far

We first imagined 3D printing as something that would enable the manufacturing of products on demand. No more need for a hardware store to carry inventory, just replace all that stock with a few metal 3D printers and create products on demand. Auto parts stores could adopt the same business model. So could large home improvement stores like Lowes or Home Depot. These business models haven’t transpired yet because it takes a while to 3D print metal parts and then apply the finishing processing steps. Nobody wants to order a part and wait 2 hours for it to be printed and subjected to post-processing. Then there’s the economic barrier which is that 3D printing still costs too much.

On-demand manufacturing is all about making this business model work for business-to-business applications. Since throughput is key, these business models require that you have more machines than you would ever possibly need at any given time. This translates to extremely short lead times when an order arrives. All the machines you need for the job are available, and that includes having more CNC machines so that you can speed up traditional manufacturing as well. 3D printers don’t replace CNC machining or injection molding but now compliment them to create an entire “digital manufacturing ecosystem” according to a recent report by 3D Hubs titled “3D Printing Trends Q1 2019.” 3D Hubs is one company that recently adopted a new business model for on-demand manufacturing themselves.

3D Printing Bureau

The report talks about how 3D printing is around a $10.2 billion market presently, but only constitutes .01% of the $12.7 trillion global manufacturing market. Up until recently, 3D printing was used exclusively for prototyping, a relatively small market. According to their survey, 3D Hubs learned that 90% of engineers would not consider 3D printing for productions of over 100 parts. Today, we’re reaching a point where 3D printing is entering small-scale production and mass manufacturing, markets that are 10 to 100 times larger than prototyping. You may wonder just how this differs from the “3D printing bureau” business model which has been around for a while. That’s a good question.

The business of selling print-to-order 3D printed parts online isn’t a new one. Historically, these online 3D printing companies have been referred to as “3D printing bureaus” or – as in the below chart – 3D printing service provider.

Source: 3D Hubs

Somewhere around 36% of all 3D printing revenues are generated by business models that print parts based on demand. The report estimates that online orders account for 35-45% of the share of service providers or approximately $1.3 to $1.6 billion. When we look at what’s being printed, it’s largely plastics. The online demand for plastics was 100 times higher than that for metals. From the report:

For plastics, FDM/FFF captured the majority of the online 3D printing demand – almost 80%. SLA/DLP and Material Jetting resins captured combined 12% of the demand, while SLS and MJF the remaining 8%.

All those acronyms just stand for various ways to 3D print plastics, but it doesn’t mean plastics are the only non-metal materials. 3D hubs looked at their own data to see that a growing demand is surfacing for nylon parts. In November of last year, an incredible 10% of all online 3D printed parts were produced by an HP MJF printer. The primary users of online 3D printing are engineers working in Small or Medium Enterprises (SMEs) with 75% online service requests coming from companies with less than 100 employees.

On-Demand Manufacturing

Today’s on-demand manufacturing business model emphasizes speed of delivery and the ability to produce parts at scale when it proves more economical to use traditional methods like CNC machining or injection molding. The use of software – like predictive analytics – to provide instant cost estimates will be critical in shortening the lead time from the initial point of customer interest to the time the part arrives on the customer’s doorstep. None of this “fill out this form for a quote” rubbish.

The 3D Hubs on-demand manufacturing model allows you to compare pricing and lead times across 3D printing, CNC machining, and injection molding in a single window so that you can choose what manufacturing method makes the most sense for your job.

3D printing, CNC machining, and injection molding

Source 3D Hubs

After choosing the desired method, 3D Hubs automatically routes the order to a supplier with instant capacity available. “Upload your files, get an instant quote and go into production in less than 5 minutes,” says the company’s website. They’ve now produced over 2 million parts with an average turnaround time of just two days. This ability to determine an accurate price estimate and then route the order to the most profitable service supplier while also taking into account the speed at which the order can be filled is all about software.

An article published by Engineering.com on Why On-Demand Could Be the Future of Manufacturing talks about how the emergence of on-demand manufacturing is the result of “the falling costs of 3D printing and the development of additive manufacturing as a production process.” The ability to suddenly change your usage of expensive manufacturing machines is a Manufacturing-as-a-Service business model that gives the engineers flexibility while allowing a middleman – in this case 3D Hubs – to collect more and more big data from their platform as they continue to grow their network.

Machine Shops as a Service

Now we can begin to see how the appeal of on-demand manufacturing is as much about 3D printing as it is about a new business model that combines subtractive manufacturing and additive manufacturing. Historically, subtraction manufacturing has taken place in a disparate collection of small machine shops that first started appearing during the Industrial Revolution. Modern Machine Shop Magazine made the following comment on the state of machine shops in the U.S. specifically.

Namely, in the United States, metalworking is done in facilities that are small. Small in staffing, that is. Metalworking is distinct from the rest of U.S. manufacturing in the extent to which this is true

83 percent of metalworking facilities have fewer than 20 employees.

According to IBISWorld, there are presently 19,507 machine shops in the United States. You can be sure that these smaller operations aren’t able to make the sort of technology investments needed to operate optimally. One emerging player in this space is Protolabs (PRLB), a $2.8 billion company that’s developed quite the business around on-demand manufacturing and refers to themselves as “the world’s largest and fastest digital manufacturer.”

Protolabs and Digital Manufacturing

3D printing stocks haven’t fared well over the past five years, but Protolabs might be the exception. The company had a successful IPO back in February of 2012 and since then shares have risen +270% compared to an increase of +178% for the NASDAQ-100 Index tracker (QQQ) over the same time frame. The company has shown strong revenue growth and is now valued at over $2.8 billion. That’s bigger than Stratasys (SSYS) and 3D Systems (DDD) and ExOne (XONE) combined. With just 12 manufacturing locations, the company has managed to scale their business with impressive growth in three key metrics.

Protolabs Key Metrics

Source: Protolabs

An article by Engineering.com talks about how Protolabs has been able to grow a business which now prints more than 3 million parts a month. It’s all about doing something most machine shops could never do which is to have “50 to 100 percent more machines than you need.” This means zero lead times when orders come in and they can be filled immediately once the credit card gets swiped. The same article talks about how some machine manufacturers are willing to offer a “Machining-as-a-Service” offering which means a company pays for only the time they’re using a machine. The machine is provided for free and you receive an invoice the day after you use it. If that’s the case, then there’s no limit on the number of machines you can add, and you’re only limited by space.

Protolabs has been slowly making acquisitions over the years to supplement a business that started out offering injection molding before expanding internationally and then adding on CNC machining, 3D printing, and more recently sheet metal capabilities with the acquisition of Rapid Manufacturing. The acquisition made a lot of sense considering that 75% of Protolabs’ customers purchase sheet metals parts. Plus, Protolabs ended up with a whole lot of new customers to cross-sell. At the time of acquisition, fewer than 3% of Protolabs’ customer contacts had done business with RAPID and Fewer than 30% of RAPID customer contacts had done business with Protolabs.

Today, Protolabs operates over 1,000 machines in almost 1 million square feet of factory space. That’s a whole lot of manufacturing capabilities that can enjoy economies of scale and service the entire “high mix, low volume” manufacturing segment as seen below.

Contract manufacturing landscape

Source: Protolabs

Protolabs has clearly identified where they fit and how they will obtain their competitive advantage over a disparate collection of small shops that won’t be able to compete. Which takes us back to “on-demand manufacturing.” Throughout this article, this notion of “on-demand manufacturing” has been referred to in a number of different ways by various constituents including the following phrases:

  • Online 3D printing services
  • Digital Manufacturing
  • 3D printing Bureau
  • Manufacturing-as-a-Service
  • Contract Manufacturing

To make things even more confusing, there’s this notion of “distributed additive manufacturing” which is same same, but different.

Distributed Additive Manufacturing

A few years back we published an article on “3D Printing and Distributed Additive Manufacturing” in which we discussed how at the time, Stratasys and 3D Hubs were both building business models around distributed additive manufacturing. In that article, we talked about how “3D Hubs claims a network of 6,370 printing services in 150 countries which are said to provide over 1 billion people with access to a 3D printer within 10 miles of their home.” That business model focused on breadth of coverage geographically with thousands of possible companies to work with which poses a real challenge when trying to assure quality across that many service providers. In the old business model, the consumer would choose which company to give the order to. Today, 3D Hub decides who will fulfill the order and provides instant quotes. Seems likely they’re working with a much smaller number of companies which is probably a good thing. We could conclude then that the term “distributed additive manufacturing” referred to a 3D printer on every corner – or at least within 10 miles – and everyone could print whatever they want. That might have worked for plastic trinkets, but not for a business-to-business service offering.

Conclusion

When 3D Hubs refers to digital manufacturing, they’re implying that the entire manufacturing process needs to be modernized – from quote to operation to part delivery. They refer to the process of 3D printing adoption as a “slow revolution” where the main barrier to adoption is education and an awareness of 3D printing capabilities. The original notions of 3D printing were that we would have shops on every corner that would just print things on-demand based on what people needed. Looks like the use case remains the same except that it’s business-to-business. The 3D printing market is expected to double in size over the next years, and several recent funding rounds into other startups that are pursuing on-demand manufacturing business models show that investors think this business model is the way forward. In our next article, we’ll take a look at all these recent funding rounds and other companies out there like 3D Hubs that are moving towards an on-demand manufacturing model.

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