3D opportunity for the supply chain: Additive manufacturing delivers Driving supply chain transformation

07 October 2015

Additive manufacturing, or 3D printing, is poised to revolutionize industries such as health care and defense. Kelly Marchese of Deloitte Consulting LLP spoke to Tanya Ott about the implications across industries—from supply chain transformation, to challenges around intellectual property and talent.


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TANYA OTT: This is the Press Room, a Deloitte University Press podcast on the issues and ideas that matter to your business today. I’m Tanya Ott.

Gray’s Anatomy was first published almost 160 years ago. And in that time it’s become widely regarded as the work on the subject of anatomy. But it’s pretty safe to assume that Henry Gray never would have predicted what’s going on in the medical industry right now. Last year, the television show that takes its name from Gray’s seminal work featured an episode in which Dr. Yang prints a vein, and Dr. Grey—Meredith, not Henry—attempts to print a heart. All on a 3D printer. That’s right. It’s not just for printing personal bobble heads, toy guns, and other ephemera.

3D printing—or additive manufacturing, as it’s called in the business world—is poised to revolutionize industries such as health care and defense. And Kelly Marchese says there are huge implications for supply chains across many industries.

KELLY MARCHESE: In the past, [for] anybody who manufactures a product, whether it’s a tube of lipstick or a toy or an air duct for an aircraft engine, there’s all kinds of tooling associated with that. And so there’s capital investments, and you have to have enough economies of scale to be able to produce it at a cost that people can afford. Additive manufacturing basically takes that requirement for having economies of scale away. You can produce low-volume parts, and it’s the same cost. It removes the capital requirement for a complex part. So complexity is free. You can produce a nail, or you can produce a highly intricate part that you never could produce through subtractive manufacturing. And so it opens up the supply chain in ways we could never imagine.

TANYA OTT: Kelly Marchese is a leader in Deloitte Consulting LLP’s Strategy Operations practice. She specializes in the area of supply chain strategy and innovation.

KELLY MARCHESE: We’re seeing the most interested industries are those that require highly customized parts. So you think about the health care industry, life sciences. You’ve seen a lot of additive manufacturing used in hearing aids or braces or even hip joints—so anything that requires high levels of customization on the spot. But also in, say, aerospace and defense—or automotive, where there are parts that have been produced decades ago, and they need a replacement because they’ve broken down, and perhaps those suppliers don’t even exist anymore, let alone the tooling. So low-volume parts where there’s a high degree of need for them in an immediate way.

TANYA OTT: So, for instance, if I have a classic vehicle, and I need a brake pedal for it?

KELLY MARCHESE: Exactly! A lot of the DoD [Department of Defense] agencies are really interested in this because when they have the highest degree of need for readiness; they’re in hard-to-reach places, and so there’s not a lot of inventory sitting around that they can leverage if a component has broken.

TANYA OTT: That’s a good point. It’s not just about the making of that component but the location of that making and how easily you can get it from one point to another point.

KELLY MARCHESE: That’s correct.

TANYA OTT: How widespread is additive manufacturing right now?

KELLY MARCHESE: We did a study recently, and it showed that 24 percent of companies are using additive manufacturing in more than just prototyping. So it’s been a while. Engineering organizations have been using it to develop prototypes in product development, but it’s not becoming more heavily used and considered in supply chains. Now, when we break out the companies that are considered supply chain leaders—meaning they’re outperforming other organizations in terms of both their quality as well as their cost performance—50 percent of those companies are using additive manufacturing. So they’re using it as a competitive advantage. It’s not the only thing that they’re using, but it is definitely a differentiator between leaders and followers in terms of high-performing supply chain organizations. And when we asked organizations whether they were going to increase the use of additive manufacturing, the number popped up to over 70 percent.

TANYA OTT: Now let’s delve into that supply chain: That goes sort of two directions from a company that’s putting a product out there. There’s the upstream: the supplies that are giving them the components that make their product. And then they have the downstream with the retailers. And you’re looking at additive manufacturing in both directions. How important is this in the supply chain?

KELLY MARCHESE: It can open up all kinds of doors to new businesses. If you’re a consumer, there’s the potential that you could actually buy the rights to a part and print it where you are. So it opens up new channels to consumers and new business models that all kinds of companies are going to have to consider and capitalize upon.

TANYA OTT: What do you mean by that? You mean an average person might have a printer, and they might purchase the rights, like they would the rights to download a piece of music or something?

KELLY MARCHESE: Absolutely. That could be out there. Or they may not have . . . because there’s not just one type of 3D printer. There are different types of materials, different certification. And so you could, not too far in the future, say, instead of the UPS or the FedEx stores, just [have] printers where you can print paper out. They’ll have 3D printers, and they’ll have a different suite of 3D printers. Or maybe there’s another type of company that focuses solely on additive manufacturing printing, and there’ll be one in every neighborhood. And so people will say, “Hey, I downloaded this part, and I want it printed over here.” And they’ll go pick it up.

TANYA OTT: So, I downloaded my brake pedal for my vintage car, and I want to get it. I’m going to come over Saturday at 1 o’clock and print it over at your space?

KELLY MARCHESE: Exactly. And it opens up all kinds of interesting implications around intellectual property, and is that machine actually certified to print this type of part, and what is it qualified on initially depending on the degree of complexity of that particular part and the materials.

TANYA OTT: So that’s the consumer on the ground. That opens up a whole lot of complexity, as you say. But when we’re talking about a traditional supply chain with companies that maybe have suppliers upstream, what are the implications there?

KELLY MARCHESE: One of the implications is that they may be able to work with those particular suppliers and do the same thing. The supplier would design that part, and the supplier doesn’t have to maintain all of the inventory for obsolete parts. And so they have a secure supply chain for the long term without having to pay for that supplier maintaining historical inventory or historical tooling. So cost should be reduced.

TANYA OTT: So cost is reduced. I would also imagine that might affect the size of a warehouse space a company might need [and] the amount of materials they have to purchase to make something.

KELLY MARCHESE: That’s right. And if you have inventory, most companies have to plan for how much they have to maintain after they take that tooling out of commission. So not just how much, but also where to house it. If you think about a giant aircraft, that can have up to 4 million parts. How many of those parts do you keep in inventory and where? Because those aircrafts fly all over. So it’s not just the volume of parts but how many inventories [and] warehouses that you have to maintain.

TANYA OTT: I think this is really interesting from a business development standpoint. I’m based in the South, where Georgia, South Carolina, Alabama fought against each other to get auto manufacturing . . .


TANYA OTT: And one of the big sales points is, hey, we’re closest to a large international airport, or we’re closest to a port or we’re closest to this great rail system. This might change that dynamic a little bit.

KELLY MARCHESE: The idea of decentralization of production is tremendous. Think about if a company’s trying to go global, and now they want to set up a facility in another country because transportation of parts is too expensive. So they actually don’t have to invest in a ton of new manufacturing equipment. They could use additive manufacturing, and the cost of capital to enter a new country or new market is reduced. And so you can really decentralize your production and drive down transportation costs as well.

TANYA OTT: How does that change that [the] economic development battle that happens amongst many states?

KELLY MARCHESE: Yeah, I think it’s really interesting. There’s going to be a lot of different implications that will change some of the decision criteria that some of the companies make and maybe some of the leverage that different governments have in being able to move jobs into those particular locations. Speaking of jobs, the other thing that’s interesting about additive manufacturing is it changes the profile of the workforce.

TANYA OTT: How so?

KELLY MARCHESE: Well, in a couple of different ways. One, it used to be that you would have to manufacture multiple different parts and then assemble them together. In additive manufacturing, you can actually print out a part that has intricate gears or honeycomb and things that you don’t necessarily have to assemble. It can be printed together. So it does reduce the production time. It reduces the labor requirement. It reduces waste. So that’s one potential implication on jobs.

The other is actually, for those people who run those pieces of equipment, it takes a different skill set—being able to train up the workforce so that there’s the right kind of skill sets to be able to translate those designs, monitor the equipment, ensure that it meets the right quality standards. And it shifts so that there’s not just a huge concentration of the workforce in one place if you decentralize production.

TANYA OTT: So you mentioned earlier that 20-some percent of companies are already using additive manufacturing, and some of the leaders are using it at much higher rates. Is the training of the workforce on path to keep up with that growth?

KELLY MARCHESE: Probably not. You know, you talk to the Millennial generation coming out of schools and trade associations, and they’re absolutely getting this kind of training, but there’s not as much, or enough, education out there or training for those who may already be in the manufacturing workforce—which makes it contingent on companies to get ahead of the curve if they’re going to be making this shift. They can’t just assume they can hire them all in.

TANYA OTT: So this could be yet another workforce shift issue, turmoil within manufacturing, which has seen a lot of it over the last few decades.

KELLY MARCHESE: Yeah, that’s right. I think about it and compare it to when ERP [enterprise resource planning] came through the IT world. There were all kinds of people who knew how to do custom coding, and then there was a shift to commercial, off-the-shelf software, and people who had technical skills needed to shift their knowledge and technical skills to something that was almost completely different in the way it worked.

TANYA OTT: So how does a company that’s looking at this decide whether or not they should get into additive manufacturing, and if so, how, at what level? What are the considerations?

KELLY MARCHESE: You can either take an incremental step or take a giant leap (laughs). It really depends on the need and the demand of that particular company. If you’re dealing in a high-volume production business, additive manufacturing can be a backup plan. Right? So if you’ve got a supply chain disruption, it would be really good to have that backup capacity and capability through additive manufacturing. But if you’re in a lower-volume business, or you’re trying to grow into new areas, you can imagine that your customer would value a simpler part where you can manufacture a complex design with fewer parts. If the material cost is so high that the cost of waste is a primary driver of the cost of the part, those are places where additive manufacturing combined with traditional manufacturing could be a game changer.

TANYA OTT: As you look at the landscape of companies that are using additive manufacturing, maybe those leaders for instance, are there some that stand out to you? Where you go, well, this is a really interesting one to watch what they’re doing.

KELLY MARCHESE: There are so many interesting ones. I find the ones in the medical field particularly interesting because, you know, lives are on the line. Every human is different, and so the ability to drive customization can have a dramatic impact on the ability for it to be successful. So I think in the life sciences and the medical field, it’s particularly interesting. I also think it could make a tremendous difference in the way our Department of Defense manages its cost, because if you think about some of the programs that are out there, how expensive it is to maintain, this could really make a big difference in terms of driving down costs but also protecting lives.

TANYA OTT: What new or emerging technologies are happening right now in additive manufacturing that are going to push that envelope a little bit?

KELLY MARCHESE: The equipment, the actual printers, are getting more and more sophisticated in the number of materials they can use. So that will open up more and more doors. What I also think is interesting is thinking about the digital thread. Supply chains get complex really quickly when you think about the number of suppliers. Now you’re thinking about 2D prints that have to be converted to 3D prints. Who owns those? How do those get transmitted . . . how to make sure that they stay secure—maintain their IP [intellectual property] but also are not hacked by someone who may have malicious intent . . . how they get translated over to the appropriate piece of equipment . . . how they monitor the process. That digital thread is going to be really interesting because the organizations that find the way to connect all of those disparate systems will have a great market on their hands.

TANYA OTT: So let me back you up there a second. You really caught my attention. We’ve just come from talking about health care and talking about defense, and then you’re talking about essentially this whole system possibly being at threat of being hacked. That’s probably a little scary when people hear that.

KELLY MARCHESE: Right! I mean, so much of what we rely on is digital and has to get transmitted, and maintaining the security of designs that are producing things that are critical. . . . You know, engineers spend thousands of hours designing something, and if someone could hack in, make a slight tweak, and compromise the integrity of a part, that’s something you’d want to be able to defend yourself against.

TANYA OTT: How is the legal system keeping up with this? Because obviously people who invent parts are going to patent them, but is the legal system keeping up with additive manufacturing and all of the sort of wrinkles in this way of doing things?

KELLY MARCHESE: It will—eventually, right? So you can imagine this is the Napster of tomorrow. We haven’t yet come across that case where it’s been defined how the legal system will fall out. But at the end of the day, it’s a business decision for organizations for how they want to use this and how much they’re willing to pay for the ability to control their own manufacturing.

TANYA OTT: What should your business consider before getting into additive manufacturing? Read more in Kelly Marchese’s article 3D opportunity for the supply chain: Additive manufacturing delivers at dupress.com.

I’m Tanya Ott for the Press Room, a production of Deloitte University Press. We post new podcasts twice a month. And check out our archive at dupress.com, where we’re talking about things like digital disruption.

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