How to Manufacture Using the Amazon Model

Over the past decade, the primary business models in almost every industry have been shifted by digitalization. The companies that leveraged this shift and used software systems to harness, evaluate and process data have taken over economic leadership in the Platform Era. These are the leaders of the digital economy - Google, Amazon, Microsoft, Facebook. The harnessing, processing and sorting of data has overtaken the production of goods in terms of the total economic value... at least for now.

Agile Manufacturing: Stepping into the Next Industrial Revolution

In the past five years there has been a real shift towards data-driven production. As the quality of 3D printing improves and drives down prices, there has been a significant move from producing Prototypes to Functional Products. This is a landmark for product digitalization. End products are beginning to be produced on-demand from digital data. Just as the Amazon growth model illustrates, when customer data begins to influence process streams, it drives customization, automatization and entirely new business models.

Products, Data and Agile manufacturing infographic

While additive manufacturing has been a main focal point for digital production, other systems (artificial Intelligence for logistics, sensor-based tracking throughout production processes) are also contributing to the rapid changes we are experiencing. This combination of manufacturing and tracking is what allows entire production streams to adapt dynamically. These costs fall based on the yearly increase in the amount of AM machines joining the production capacity, as shown in the graph below, the decrease in cost for sensor and tracking technologies, and software platforms like 3YOURMIND that combine automated access to production resources and customer data ready for generative design and intelligent logistics. The next industrial revolution is already changing the way objects around us are made, yet this fact is hardly known outside production facilities that have already made the shift.

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Agile Manufacturing combines data-driven digital manufacturing streams with the principles of agile programming. It is the same methodology that powered the growth model of internet businesses. Agile Manufacturing creates algorithms so digital production workflows can respond in real-time to customer needs. The advantages of data-driven design will become a new opportunity for businesses to position their value in the market, as production streams become decentralized with shorter logistic chains and less expensive through automation.

Agile Manufacturing has clear advantages for both efficiency and customer expectations: decreasing production, logistic and storage costs; quicker delivery times; and genuine product individualization instead of today’s (at best) mass individualization. Over the next 15 years, the companies that climb to the top of industrial production will be those who integrate data with physical production.

This blog post series will examine the core principles of Agile Manufacturing and explore the opportunities, best practices and risks from the pioneers of this silent revolution.

Moving from Industry 1.0 to Industry 4.0

The societal shifts resulting from the first and second industrial revolutions are clear to every business, but the third and fourth revolutions are happening around us now, and are far more difficult to see clearly.  

In the 90s, Lean Manufacturing redefined how production processes were conceived as they shifted the emphasis to efficiency and cost-savings. The focus of lean is reducing or removing fixed and variable costs. The typical examples are variable tooling on more complex production machines and removing potential defects on the production line as soon as they are discovered. As businesses made the shift to Lean, they were able to offer consumers small-series production at a cost-point that was near to mass-manufactured products.

The recent advances in digital manufacturing are about reducing and automating the variable costs of production. This includes production directly from digital design files, which removes one of the highest costs of new parts: tooling and molds. Software-driven manufacturing queues lower the labor of setting up machines. Additive manufacturing can also simplify complicated assemblies and shorten logistic chains. Most use cases are still more expensive in additive rather than conventional manufacturing, but this is due in large part to lack of clarity on proper business cases and the large amount of post-processing that needs to be performed on AM parts to prepare them for end-use. Yet both of those factors are being substantially reduced each year as the technology matures.

Evolution of manufacturing - from Conventional to Agile Manufacturing

Industry 4.0 brings one other factor to the picture - the same shift that flipped the film and retail industries as characterized by the examples of Netflix and Amazon: digital information can be processed to address individual customer needs through algorithms and automation. Agile Manufacturing is about directly making customer-specific products using generative-design, data-driven logistics and the optimization of all stages of production using predictive algorithms. Agile Manufacturing is reducing all costs both for production and product development, marketing and delivery. From product recommendations to logistic center planning, all decisions are made purely based on data.

Agile Manufacturing uses the customer’s specific technical and aesthetic requirements, and produces on-demand, close to the customer. The software systems that enable data-driven, agile manufacturing are coming online to automate the pathway from design-to-production.

Leveraging Digital Production Streams

In 2006, the book The Long Tail was published by Chris Anderson, then chief editor at Wired magazine. From his position among the pioneers of Internet businesses in Silicon Valley, he was able to see a shift in the way consumers accessed products. In the past, a consumer had to take what they were offered. There were a couple of products that dominated each market, best illustrated in the Blockbuster movie store, where they stocked 50-200 copies of each “bestseller”, a single copy of “second tier” films and - well, that was more or less the depth of their movie catalog.

In 1997, Netflix was founded. Their original business model was simple - choose movies on a website and use mail order from huge warehouses of DVDs instead of movie stores. In a few short years, the customer expected to access thousands of movies instead of hundreds. As their warehouses became more efficient, it rose to tens of thousands of titles. Yet there were still limits: Netflix had to predict customer demand using sophisticated algorithms (they still had lots of inventory devoted to “best sellers”) and customers were limited in viewing by the time it took to send a DVD through the mail and the number of DVDs allowed by their subscription size.

Red Netflix Envelope

IMAGE: The Red Envelope of Netflix!

In 2007, Netflix began streaming video and fundamentally flipped the equation. With streaming representing the shift to film digitalization, the cost to deliver a movie title to the end customer approached the cost of moving data. After the licensing fees were paid, movies were encoded and placed to the Netflix platforms: consumers could view any film in their catalog at exactly the same cost to Netflix. An individualized experience was the same price as a mass produced experience.

Agile Manufacturing promises to bring those same principles to products. An individualized product will not cost any more than a mass produced item. Over time, once design and licensing fees are recovered, the cost to deliver a product to the end customer will approach the cost of the raw material. This is the promise of generative design combined with digitally driven production and AI/robotics - a 3D model is dynamically designed based on customer and production specifications, and it is automatically added to production at the nearest production and logistics center.

Business Lessons from the Long Tail of Production

When Blockbuster dominated video rental, 98% of what people viewed was mass- produced media. The exception was being in a city large enough to justify a niche product (or pure chance). But as access and delivery costs approach zero, customers begin to dive into the Long Tail. A fringe 1970s Kung-Fu movie may even end up being more lucrative for Netflix than a Hollywood blockbuster - the kung-fu flick can be added to the platform with cheaper licensing fees and it begins being recommended to customers as soon as they watch their first Bruce Lee movie. The predictive algorithms are specific to customer taste, so the specific one-offs will likely make truer fans in the process.

On-demand, individualized physical products are slowly becoming part of customers’ expectations. Just a few years ago, Additive Manufacturing could only deliver prototypes at a low quality. Now we see customized accessories in cars, efficient engine parts for rockets, and the hearing aid market switch almost entirely to 3D printing.

But the expectation set is already there. It is the rare buyer who doesn’t check through at least three pages of options on Amazon to read the customer reviews. The customer expectation is that they get exactly what they want, delivered when and where they want it.

Agile Manufacturing uses data-driven processes to predict ordering and make recommendations that will begin to provide the products you need “before you know you want them”. This is the true promise of Industry 4.0 and will be brought into reality by Agile Manufacturing. In fact, the manufacturing industry is already on its way....

Keep following our blog series on Agile Manufacturing to dive further into the impact of this production shift, to explore the benefits and challenges of the process, and examine the companies that are already putting it in place.


Agile Manufacturing White Paper Cover

 

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Topics: Business Case Agile Manufacturing The Long Tail

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