Download Personal Fabrication as an Operational Strategy : Value of

Personal Fabrication as an Operational Strategy : Value of
Delegating Production to Customer
(Authors’ names blinded for peer review)
Key words : 3D Printing, Personal Fabrication, Customization, Operations Strategy
1.
Motivation
Personal fabrication is an emerging phenomenon enabled by 3D printing and computerized
product designs, where customers control the manufacturing of the products. Customers can
buy/license the product’s design and get the product manufactured in their desired material,
color and surface finish, using firms that offer 3D printing as a service: either in the customer’s neighborhood (e.g. Lowes or UPS stores), or over the internet (e.g. Shapeways.com).
Such an ecosystem enables firms to sell their product’s design—instead of manufactured
product—and delegate the product’s production to the customer. We define the operational
strategy of selling the product’s design, while delegating the production responsibility and
decisions to the customer, as Personal Fabrication (PF) strategy. Both the business press and
the academia (e.g., Markillie (2012), Rayna and Striukova (2016)) predict PF strategy to be
a new way of delivering products to the customers in the future. We have examples of PF
strategy even at present: independent designers sell product designs of jewelry, footwear, toys
or electronic accessories in 3D design marketplaces such as pinshape.com or cgtrader.com;
Dutch smartphone maker Fairphone sells their phone’s accessories as 3D printable designs.
However, production costs of 3D printing (used by the customers, in PF strategy) are quite
high compared to traditional production techniques. Also, a firm has to consider concerns
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Authors’ names blinded for peer review
Article submitted to Manufacturing & Service Operations Management; manuscript no. (Please, provide the manuscript number!)
regarding intellectual property, as computer product designs could be easily shared on the
internet. Firm also need to manage product liability issues, as it cannot control the quality
of customer’s manufacturing. The unique dynamic of customer controlled customized manufacturing along with the challenges of cost, IP and liability necessitate a rigorous analysis
to understand if and when PF strategy would be beneficial to a firm.
2.
Model
We extend the classical vertical differentiation framework by incorporating production delegation and the ensuing quality decision made by the customer. Our benchmark is a traditional firm: it selects a quality level, manufactures and sells the product. In contrast, a firm
adopting PF strategy sells the product’s design directly to customers, allowing customers to
choose the quality level. We also differentiate firms in another dimension: established firms
with existing manufacturing capacity, and start-up firms, who do not have the manufacturing facilities to make the product. We model the cost disadvantage of 3D printing compared
to traditional production and study how the value offered by PF strategy evolves, as the
technology becomes more and more cost effective. In order to mitigate concerns about intellectual property and liability, firms may employ partial PF strategy: firm produces the core
of the product, while delegating only a proportion of the product for customer’s production.
We model the partial PF setting and study the interplay between the cost disadvantage of
3D printing and the proportion of the product delegated to the customer.
3.
Results & Conclusions
PF strategy can potentially benefit the firm in two ways: i) providing customization ability to
the customer by delegating production and quality decisions, and ii) avoiding the fixed cost of
setting up manufacturing facilities. We find that a monopolist adopting PF strategy does not
obtain additional profit from the customization aspect, though customers obtain additional
value through customization; a start-up firm can still attain higher profit using PF strategy
Authors’ names blinded for peer review
Article submitted to Manufacturing & Service Operations Management; manuscript no. (Please, provide the manuscript number!)
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as they can avoid setting up manufacturing facilities. In contrast, customization offered
by PF strategy benefits the firm in duopoly setting, through implicit quality commitment.
Quality commitment is known in the literature to improve profits of a firm in competitive
settings. We show that the PF strategy provides the equivalent benefits of credible quality
commitment: a firm adopting PF strategy obtains the same profit as a traditional firm that
credibly commits to the monopoly optimal quality position.
When we consider the cost disadvantage of 3D printing compared to mass production,
PF strategy may benefit an established firm, only when the cost disadvantage is fairly small
(about 11%). This result is consistent with practice: established firms like Nike and New
Balance talk about using PF strategy in the future—when 3D printing becomes more cost
competitive— while not using currently. However, start-up firms benefit from PF strategy
even when 3D printing has a relatively high cost disadvantage, as they obtain the fixed cost
benefits; this is also observed in practice: independent designers are adopting PF strategy
currently and sell product designs, though 3D printing has high cost disadvantage at present.
We find that partial production delegation (partial PF strategy) can be beneficial for the firm,
as long as the proportion of the product delegated for customer’s production is large enough.
Hence, a firm can benefit from the PF strategy, as long as it can identify a large enough
proportion of the product (for delegating to the customers) with manageable IP/liability
risks. The minimal required proportion of the product that needs to be delegated, depends
on the cost disadvantage of 3D printing. If a firm could only delegate a very small proportion
for customers’ production, it needs to wait for the 3D printing technology to become as cost
competitive as traditional production.
References
Markillie, P. (2012). The third industrial revolution. The Economist.
Rayna, T. and Striukova, L. (2016). From rapid prototyping to home fabrication: How 3D printing is changing
business model innovation. Technological Forecasting and Social Change, 102:214–224.