The following is a lecture from Raghuram Rajan, a finance professor at the University of Chicago’s Booth school of business, uploaded in December 2010. Skip to 10:05 for his analysis on Germany’s economic recovery and the current Eurozone crisis. It is not directly related to Operations Management, but I believe it is relevant information for any manger working in a global economy.
The Assembly Line is Obsolete.
Additive manufacturing (3D printing) will change the way all products are built by allowing mass customization. Imagine yourself designing your dream car and watching it printed right in front of you. Or imagine that you lost your cell phone, no problem; just download a new cell phone online and print it at home.
3D printing is already used to create prototypes, medical implants, and researchers at MIT have used it to print a working grandfather clock. Boeing and Airbus are already using 3D printers to produce airplane replacement parts and may one day be able to print entire aircraft. Eventually 3D printing will allow customers to invent whatever they want and enjoy it without waiting for deliveries.
According to the Economist newspaper, additive manufacturing wastes less material than traditional manufacturing. Products made by 3D printing are also lighter than products made by assembly lines; since assembly line products contain extra parts that help build the device, but serve no purpose after it is created.
If additive manufacturing is successful it will radically change supply chain management. Tangible supply chains will cease to exist. Instead companies will design inputs on computers and then lease the software to the maker of the finished good, who will print it for the consumer. For example Canon might design a webcam, but instead of building and shipping it to Dell computers, it will email its design software to Dell. Dell then takes Canon’s computer model and combines it with programs for other laptop parts (batteries, processors, memory sticks, etc). The final consumer can then customize their laptop on Dell’s website and then print a new laptop for themselves at home.
The only supply chains necessary will be for the transportation of titanium powder, liquid plastic, and other materials inserted into 3D printers. Food, prescription medicines, firearms, and other regulated items might be the only products unchanged by additive manufacturing.
Managers will no longer need to worry about forecasting the right amount of inventory to keep. Companies will provide products only and exactly when their customers demand it. There will be no need for “inventory” or “safety stock.”
“Statistical process control” which was once used to detect defects in products will be replaced by software upgrades. If a consumer has a defective product, they will simply email the manufactory, who then replies with a software update, the consumer will then print a new product and throw away the defective product.
Since everything is printed by the final consumer, “bottlenecks” no longer exist. Low skilled workers will be replaced by engineers, computer programmers, and the product designers.
This change also creates new problems. For example it may be hard to define/enforce the property rights of product designers. People may start “torrenting” or pirating stolen software.
How do you think management will be changed by additive manufacturing? What are benefits to 3D printing and what new problems it might create?
Just-in-Time or Just-in-Case
Just-in-Time or Just-in-Case
Over the last decade many manufacturers have started using a “Just-in-Time” delivery system for their global supply chains. The advantage to this system is that companies receive the exact components they need at just the right time, which minimizes inventory costs. The disadvantage is that their supple chains become vulnerable to shocks. For example Ice Land’s volcanic eruption of 2010 prevented the air transport of components across the Atlantic. To reduce the risk of supple shocks, Economists at HSBC have purposed “Just-in-Case” supply systems.
Their proposal suggests diversifying supply chains both across companies and geographically. For instance having multiple suppliers from different countries reduces the risk that a natural disaster might stop the flow of inputs. The problem is that this new system loses the advantage of economies of scale and does not minimize inventory costs has efficiently as “Just-in-Time” supply chains. I think companies should measure the risk of each supply system and chose the system such that marginal cost equals benefit.
What do you guys think?
This article from the Economist describes the idea in greater detail.