C1) Additive Disruption in Different Industries – How?

Preface of my first blog: I know it is weird to start with Series C instead of A, but I have a reason. What I discussed in this blog will be the foundation of many ones following. You will feel the rationale through reading this one labeled as “C1”. But if you think this is too long, fundamental, or bored to read, you can just jump to the end where I summarize take-away messages. Thanks a lot for your patience! Now let’s start. 😊

Skyrocketing? Hype?

Disruptive? Niche?

You are not alone if you have those question marks for the additive manufacturing industry. I had such mixed feelings for AM for a very long time, especially after I read different sources with various opinions. If you ask questions, such as whether AM will be disruptive, or continue to grow fast in future, to those related sources or experts, most of the answers would be:

It depends.

But depends on what?  The following answer can be vaguer, such as technology development, adopted industry and applications, product quality, and so on. Correct or not? Correct. Helpful? Not really.

As a trained researcher and data analyst, I believe that most hypes and doubts are generated due to lack of transparency. Whether it is missing data, limited evidence, unstated assumption or hearsay story, the lack of information blocks our eyes and compels us to derive conclusions and decisions from past experience, knowledge, or even intuition. Sometimes we can be right, but other times we can far deviate from the truth. I have battled hard over intransparency for my doctoral dissertations through data collection, model development, and quantitative analysis to better understand the implications of AM. I don’t think I fully answered such a complicated question through my 300-page dissertations, and hell no that I think I can answer it now with this blog in 1000 words. But what I can offer you here is some leads, tools, resources, and findings from my research to help you better structure your thinking, navigate yourself through your own “mist”, and see what I peeked for the future of AM.

One of the core questions that are asked very often, but also leads to hypes, doubts and uncertainties is:

How additive manufacturing is disrupting or will disrupt my industry/business/product/process and so on?

There already are very good resources to start with if you want to learn for this question. For example, some resources that I benefited a lot:

“3D opportunity” series of reports from Deloitte (high quality, well & widely covered most related topics)

Marc Saunders’s posts & articles (leading expert at Renishaw, I am following him, reading his posts and learning all the time)

and Direct Manufacturing Research Center (DMRC) annual reports (I was amazed by their analysis and vision for additive manufacturing)

If you want to further try something dryer and maybe less interesting, I can share some literature including my own publications. 😊

But if you still have little clue for your own specific disruption questions, the first thing I’d like to share with you from my research experience is that whatever your question for AM disruptions is, you actually only need one simple equation to start with. Nothing more, but very effective.

It is the basic profit equation used in the income statement:

Profit = Revenue – Expenses

Think this through: whatever disruption of whatever technology is, the fundamental changes definitely reflect somewhere in the bookkeeping at a certain time. It does not have to be yours, but can be your customers’, your suppliers’, and/or your competitors’. It does not have to be now or short term but also long term. If no changes can be materialized in someone’s financial performance at a certain time, highly unlikely a disruption can be claimed.

Straightforward, right?

As a result, the potential disruptions of AM can be treated as delta in the profit function for a certain time period: delta revenue, delta expenses, and

Delta Profit.

This is fundamentally how AM disrupts. Delta profit.

C1 DeltaIf your delta can reach positive through certain time with relatively high confidence, the disruption is happening and you should jump in; if your delta will be negative due to your competitors’ positive deltas in near future, the disruption is coming and you should be prepared; if your customers’/supplies’ delta will be positive but not yours, you need to find a way to lead the disruption to you.

I believe you may already consider AM from a financial point of view, but I’d like to emphasize it can and should be the ground zero for any considerations, strategies, and decisions regarding AM adoption and disruption. Forget about the fancy AM machines, cool parts only achievable through AM, or other claimed amazing benefits AM can bring. Those should be reasons for adoration, but not for decision.

Start with Delta Profit.

Take several steps further, the delta of the operating profit function (the total net profit without revenues/expenses from finance and tax, let’s assume little changes in those parts due to AM) can be written as

ΔProfit = ΔUnit Sold x (ΔUnit Price – (ΔUnit Material + ΔUnit Direct Labor + ΔUnit Production Supplies)) – (ΔUtilities + ΔDepreciation + ΔIndirect Labor) – (ΔAmortization + ΔSelling, General, and Administrative Expenses + ΔR&D Expenses)

C1 Breakdown

Since we are estimating future for most disruption questions, every delta on the right of the equation is a sum of expected values under uncertainties and risks at a given time period (e.g., quarter and year).  For example,

ΔUnit Sold = E[ΔUnit Sold] at year 1 + E[ΔUnit Sold] at year 2 + …

I keep the derivation as below, you can skip this part if you are bored or want to save time.

Profit = Revenue – (Cost of Goods Sold + Operating Expenses)

= (Unit Sold x Unit Price) – (Cost of Goods Sold + Operating Expenses)

= (Unit Sold x Unit Price) – (Variable Costs of Goods Sold + Fixed Costs of Goods Sold + Operating Expenses)

= Unit Sold x (Unit Price – Unit Variable Cost of Goods Sold) – Fixed Costs of Goods Sold – Operating Expenses

Variable Cost of Goods Sold = Material + Direct Labor + Production Supplies

Fixed Costs of Goods Sold = Utilities + Depreciation + Indirect Labor

Operating Expenses = Amortization + Depreciation + Selling, General and Administrative Expenses + R&D Expenses

This equation should be your GPS for strategic thinking about AM disruption. The delta you need to know is disseminated into different MECE (Mutually Exclusive, Collective Exhaustive) deltas. Your questions such as how AM will disrupt my business can be disseminated into questions like:

How AM will change my delta of unit sold?

How AM will change my delta of unit price?

How AM will change my delta of SG&A?

How AM will change my customer/competitor/supplier’s delta of unit sold?

Getting more structured and clear right? In fact, those MECE deltas for AM can be categorized as disruption at different scales – process, product, and management:

C1 Map edit

This figure will be the foundation of my offering of blogs (Strategy & Impact) and appear again and again. In the next blog, I will discuss details of those MECE deltas and what AM is impacting or will impact in the deltas through data, cases, and analysis. Watch out for my next one “AM Disruption at Different Scale – What is Happening and Wild Guesses” early next week. Follow us if you are interested!

My ending question for you:

By following the map, how AM is disrupting your delta?

Looking forward to your comments & discussions. Thanks!

Take-away message:

  1. Delta profit reflects AM disruption and can be used as guidance for strategic thinking
  2. The MECE deltas structure map for potential AM disruption