This week we return to our #AM4CXO series. The series focuses on top management’s concerns and sheds light on how these concerns can be addressed using additive manufacturing (AM). While the previous installment looked at cost-cutting and how AM can affect the bottom line today we look at the top line, at a constant CXO concern – adding new revenue sources.
CEOs are always looking for new revenue sources, It’s the CEO’s responsibility to cut costs on one end and grow profits on the other. It’s a heavy burden to carry, no doubt, just recently Navya’s CEO was fired due to a revenue shortfall. New revenue sources guaranty the continuity of a company, the obvious strategy is to constantly develop the next product, service or business model – this is true for large enterprises as well as smaller companies. It’s only natural that products released will eventually either plateau and reach the peak of their profitability or disappear and become irrelevant, either way, a company should always look to expand their product offering or business models leading to new revenue sources. One example is Amazon and Amazon’s Web Services. In the 3rd quarter of 2018, AWS delivered 56% of Amazon’s total operating income. On its own, AWS is the size of a large successful company (bringing in more money than McDonald’s in 2018).
Most people think additive manufacturing is about saving costs but it also opens up new revenue models. Of course, the first thing that comes to mind in this regard is additively manufacturing parts and products that wouldn’t have been possible to produce otherwise. As we already established, new products equal new revenue sources, but its more than the geometry of a part (below the complex geometry of Adidas’s 3D printed soles).
Never Stand Still
Beyond new parts and products, a possible revenue source facilitated by additive manufacturing is emergency spare parts. It’s based on an existing model – pay more to receive the part you ordered faster. Basically, companies can pay extra for rushed jobs, for faster production and faster shipping. This is very useful in situations such as when a part of a production lines breaks down disabling the entire production line. The costs of an idle production line are significant, imagine, for every minute of downtime the average automotive manufacturer loses $22,000. Usually ordering and receiving spare parts can take days if not weeks, but with additive manufacturing, manufacturers can offer their customers emergency spare parts. Much like a spare tire, these parts don’t need to replace the original part entirely, they can be a lower standard, temporary fix – the main goal is to keep production running. By differentiating emergency spare parts and original spare parts the manufacturer opens up a new revenue source and the customers receive an immediate solution catering to their needs.
Customization, Affordability and Bigger Markets
Catering to the customer’s needs is also the basis to another revenue source enabled by additive manufacturing, customization. While emergency spare parts are somewhat customized, creating a product that is uniquely customized to every customer is an entirely different revenue model. Invisalign is a testament to that. Invisalign sells clear customized teeth aligners which are 3D printed enabled (below). Before 3D printing, these type of aligners would probably be another product in a list of products offered by dental companies, with 3D printing (along with simulation software) the company can specialize and produces actually only one product. This one product is highly customizable, utilizing AM the company can provide better prices for a product that would be very costly to produce otherwise, which in turn allows them to reach a much wider market.
A product doesn’t have to be individually customized in order for a company to benefit from AM and create new revenue streams, higher variations is another way to go. Designing variations of a product, for different groups or categories, is similar to the way retail clothes come in various sizes but don’t need to be individually customized to cater to most people. Instead of manufacturing one product for all, or on the other hand offering a completely customizable product, with additive manufacturing a company can create a larger range of variations without producing large quantities of inventory or opening new production lines. If you are an aircraft manufacturer selling to airline companies – providing each customer with their variables means answering your customer’s needs without reaching a high volume production of 10000 pieces per part. In the end, developing products is risky, each new product is a risk, but at the same time each product is an opportunity, much like lottery tickets, the more you have the higher your chances are to win (below Daimler 3D printed interior part and up top Airbus Helicopters additively manufactured latch shaft for door).
Each new product brought to market involves extensive costs – R&D, production, marketing, inventory and so on, the higher the cost of development is, the bigger the risk and the fear of failure. Yes, failures are needed in order to improve and develop but at what costs? One example that comes to mind is the Newton developed by Apple. Tremendous efforts, time and money went into the development of a device that failed, on the other hand, this device had a significant impact on the devices we use today. With additive manufacturing there are 2 major differences when discussing the risk of failure in new products: one is that you don’t need to build inventory, a failure without inventory, is much more bearable. The other is that in the development process using AM, iterations are much faster, multiple testing can be done using the same technology and material which will be used for production. A failure following a swift development process won’t cost as much, and as always, after a failure, the insights can be applied faster in the next product.
There are always risks in pursuing new revenue sources, yet standing still will get you nowhere, or even worse – drag you down. Integrating additive manufacturing in new revenue sources allows for more ‘educated’ guesses, controlling costs while implementing new products or business models, reacting faster to the needs of your customers and to the bottom and top line of your company.
What are your top management concerns? Follow our #AM4CXO series, if you have a top management issue you would like us to include just write us in the comments below. For more insights and information follow us on LinkedIn or subscribe to our newsletter for weekly updates.