Something we have heard a lot over the years from CFO’s in particular is, ‘Should we insource or outsource our 3D prints for rapid prototyping?’
It is the question your CFO will most certainly ask you in the next annual budget gathering. And since its his job to know the financial benefits of a shortened product development cycle, you can be sure that he is in tune with the developments in the 3D printing industry. Most probably he has also bought in to the vendors’ argument on the advantage of an inhouse 3D printer, mainly shorter prototyping cycle, lower print cost, increased product confidentiality and maybe even the rational that multiple print iterations will result in a better and error free product. He would have bought in because it is the truth. But it is not the whole truth.
According a McKinsey’s Quarterly publication published last month, when it comes to sintering-based 3-D printing technologies, capital cost and their maintenance will typically account for 40 to 60 percent of total printing costs. The materials used in the manufacturing process can account for 20 to 30 percent when using common materials such as aluminum, or 50 to 80 percent when printing with exotic materials such as titanium. Staffing and energy cost will make up for the rest. The management firm’s publication further states that in the short term, printer prices will remain steady or actually increase as new technologies that improve printing are incorporated in new printers. However, as older 3D print technology patents expire, new players from Asia will enter the market with cheaper printers. The increase in demand for consumable will bring in newer players and the increase in volume will further lower consumables’ prices.
In a nutshell, insourcing will not reduce printing cost in the short term, but in the medium term. And therefore financially, it’s a wiser decision to partner with a rapid prototyping service provider for the short term. But lower cost is not the only factor one needs to consider which evaluating insourcing vs outsourcing. Especially when considering, say a 10-year time frame in the future.
Consider the case of an existing insourced system that is similar to 3D printing in being technology driven – corporate computer systems. Computer systems have been around since the end of the Second World War, and today are found on every home and office. They are relatively simple to use – yet outsourcing of computers services is more rampant than ever before. And it not necessarily being outsourced to low cost companies from developing countries. For example, last month Hertz outsourced its entire IT services to IBM. While announcing its decision, it explained that outsourcing to the Big Blue will cut costs, free resources, and allow Hertz to focus on its business.
Translated – ‘Yes’ the IT services is critical to Hertz’s operation, which is why when it did outsource, it did so to IBM America and not to the lowest cost provider. But ‘No’ it did not provide enough competitive advantage to justify the cost of maintaining a staff of 250 IT professionals. Professionals to whom Hertz could not offer a clear career path to the top of the company because IT services is ‘Not’ its core business. But for IBM not only was IT services critical, it could justify the higher cost associated with IT professionals, so much so that it hired some of Hertz’s staff. And finally it could offer IT professionals a clear career path to leadership position, because IT services is IBM’s core business.
Therefore when the CFO pops the short ‘insource vs outsource’ question in the next meet, one should just ask three questions in return:
If the CFO responds with even one negative to the above, adopting an insourced printing route will lead the company down Hertz’s road. At this point most manufacturing company CFO’s will realize that it is the product development team that is critical to the company and not the printing process. Map the above questions on a rapid prototyping services provider, and the CFO will discover that like IBM, it ticks all the boxes. And like the management of Hertz, he will discover the answer to his own question on insourcing vs outsourcing to a rapid prototyping service provider.
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