Spend Matters welcomes a guest post from Joel Johnson of GEP.
Envision a global manufacturing company with a plant on the rural outskirts of Ho Chi Minh City, Vietnam. A fractured jobber drill brings a sub-assembly line to a halt. This particular drill is a customized product and has been depleted due to a series of delivery delays. The negative impact on manufacturing output is compounded by the unanticipated time and expenses required to replace the broken drill.
Now envision the same factory in the same location—but equipped with a basic 3D printer. In this scenario, specifications for the drill are sent directly to the 3D printer from the centralized procurement department, and within a matter of minutes, the required drill bit begins to take shape.
Additive manufacturing is no longer the way of the future. It is a proven technology that is now being utilized to manufacture everything from jet engines to shoes. There are various types of 3D printing, but all involve additive processes in which an object is built up layer by layer. For example, laser sintering is a type of 3D printing which involves spreading a very thin layer of metal powder on a platform and using lasers to solidify the metal. This process is repeated with additional layers of metal powder until a finished product is developed.
The widespread advent of additive manufacturing could greatly impact procurement, supply chain and manufacturing across a vast number of industries. Two emerging trends as they relate to procurement have been outlined below:
- Material Cost Savings – In the continuous quest for cost reduction, additive manufacturing creates a new realm of possibility through decreased levels of material waste and inventory. This is exemplified by a 3D printer which utilizes only the necessary steel dust to fabricate a metal component as opposed to carving down an entire steel billet. Suddenly processes in which a large portion of the purchased material ended up as waste are 100% waste free. As material requirements continue to evolve, procurement will face new challenges in the quest to identify and develop capable suppliers.
- Vertical Integration – When the ability to produce a particular object is only restricted by access to the design data, there is a reduced incentive to procure that object from a third party. There are certainly many standardized products for which mass production is the most cost-effective option. However, the value of many specialty items resides in their complex designs and manufacturing techniques. Certain manufacturing suppliers that add value through the construction and assembly of material components may see their value diminished when a company possesses the internal technology to manufacture these products through an additive process.
Procurement and manufacturing will be challenged to identify which items currently purchased from a third party can be developed internally. In some instances, the reduction in lead times and transportation costs will create a compelling case for corporations to move down the supply chain. A detailed cost-benefit analysis of items that could be produced internally will need to take into account factors such as the proprietary nature of certain designs and general circumstances. Utilizing the example from the introduction, it may not make economic sense for an organization to manufacture all drill bits internally, but there is a definitive benefit to having access to designs so that a specific bit can be printed if a part shortage arises in a remote area.
As additive manufacturing gains momentum, it may drastically alter current supply chain fundamentals and manufacturing techniques. Procurement stands to benefit by remaining flexible and innovative in the face of 3D printing and other technologies.
For more interesting thinking on procurement, visit the GEP Knowledge Portal.