What are some of the main concerns top management (CXOs) face? How does additive manufacturing (AM) come into play when addressing those concerns? As part of our new series – #AM4CXO, we previously discussed the matter of reputation, a topic that in a way gathers everything the company does and stands for. Reputation leads us to this week’s topic – responsible cost-cutting. This 2nd installment will dive into the issues of cutting costs without exposing the company or damaging its reputation. Buying cheap can cost you more, the same applies to companies – manufacturing cheap can cost you more – in terms of customer satisfaction, reputation, and eventually the bottom line.
More than Quality – The Value of Time
When management looks to cut costs in manufacturing they have a few options, it is indeed a challenge to cut costs without lowering the production quality. But it’s more than just quality. For example, a company can decide to manufacture on-demand in order to avoid the extra costs of overproduction, warehouse costs and products that may or may not be sold, and eventually discarded. This is an excellent way to cut cost but it only looks on one side of the picture. Manufacturing on demand in order to avoid keeping stock might leave customers waiting for a long time to receive their orders. Difficulties in obtaining things, long lead times between order and shipment can result in harming the company’s reputation and customers choosing to look elsewhere.
A Supply Chain Disaster
In 2000 Nike began using a new ERP system (i2’s demand planner) that was meant to help navigate the changing pace of demands and orders, specifically the discrepancy between order time and manufacturing time. While the store order-to-delivery timeline required 6 months, manufacturing-to-delivery took 9 months, meaning the company had to rely on estimations for production. The software was supposed to predict popular models and manufacture accordingly but instead, due to an array of problems in the software the company stocked up on the wrong model leaving the company with a large amount of a not so popular model (Air Garnetts) and not enough of the popular one (Air Jordans). When interviewed a few years later Bill Swanton who was at the time Vice President of AMR Research said: “If you can share information faster and more accurately among a lot of people, you will see trends a lot sooner, and that’s where the true value of supply chain projects are.”
The Minimal-Maximal Model
Every company aspires for solutions that with minimal disruption bring maximal impact. Low disruption is key here. It’s not about an upheaval in the entire system but identifying specific pain points and addressing them. The Nike example shows that predicting which model will sell more is hard enough, predicting how many spare parts will be needed relies on a combination of the unpredictability of human behavior, accidents, and even more variables. The manufacturing of large quantities of spare parts is one of those pain points that can benefit from responsible cost-cutting. This is already happening with the help of additive manufacturing in industries such as automotive and white goods. Instead of manufacturing and storing spare parts without knowing how many will be needed and where around the world, companies can opt to keep virtual inventory and additively manufacturing based on demand. For example, Whirlpool together with Spare Parts 3D have identified 7% out of 11000 spare parts (770) that can cut costs in terms of overproduction and storage. As a first step, the 2 companies have begun additively manufacturing on demand 150 different spare parts for Whirpool’s white appliances (below additively manufactured part – photo via Spare Parts 3D). It’s not about overturning the way these appliances are manufactured or creating a completely new production line but creating a cost-worthy solution for a specific problem without disrupting the system as a whole. If 7% seems like a small number imagine the storage space required for 770 different models manufactured to cater to customers all around the world.
Companies are not inclined to reveal the numbers of products that are additively manufactured or how they cut costs, but an example of cost-cutting can be seen in how AM is applied in production tools such as jigs and fixtures. Ford, for example, states that the company saves around 1,000 euros per additively manufactured tool compared to the cost of traditional manufacturing it. Using Ultimaker machines Jabil has reported a 40% reduction in costs and 80% reduction in delivery time for jigs and fixtures, while Volkswagen Autoeuropa states that the company has reduced 91% in tool development costs and 95% in development time (above A 3D printed liftgate badge tool made at Volkswagen Autoeuropa – photo via Ultimaker). In 2016 alone the Volkswagen factory saved $160,000 in tooling costs. Luis Pascoa, Pilot Plant Manager at Volkswagen Autoeuropa commented on the process of adopting the technology said: “Just by printing a handful of tools we can get back the initial investment”. These are the numbers we know of, in terms of using AM for the production of end parts we see more and more companies taking action, and actions speak louder than words – and numbers (up top and below a 3D printed window guide rail BMW i8 Roadster – the millionth printed component by the company).
Virtual Inventory + Quality Control = Responsible Cost-Cutting
Cutting costs by adopting a manufacturing-on-demand model has great potential, still, it requires tight monitoring. There has to be an overview of the system along with a focused view on every aspect within it – keeping track of the number of parts ordered and where, making sure quality standards are enforced, that delivery times are kept to a minimum and so on. With a quality system in place, a company won’t be damaged by cost-cutting actions involving AM. A calculated thought through approach can lead a company not only to responsible cost-cutting but to an improvement of its products and services.
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