How to Manufacture Using the Amazon Model

Brian Crotty | July 27, 2018 | 7 min read

Over the past decade, the primary business models in almost every industry have been shifted by digitization. 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: A new method for manufacturing

In the past five years there has been a real shift towards data-driven production. As the quality of industrial 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 digitization. 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, automation and entirely new business models.

Products, Data and Agile manufacturing infographic
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 to new production requests.

In coming years these trends will strengthen, as we’ve already seen AM production costs fall due to rapidly increasing amounts of new AM machines joining production capacity (as shown in the graph below). This effect will further be fostered by machines’ increase in efficiency and quality as well as the decrease in cost for tracking technologies and software platforms like 3YOURMIND, which combine automated access to production resources and customer data ready for generative design as well as intelligent logistics.

While the third and fourth industrial revolution are already on their way and changing especially digital businesses, our production methods are not yet benefiting from digitization as much as they could are mostly still stuck in the second industrial revolution of serial and mass production. 

Dramatic rise in metal AM system sales
Dramatic rise in metal AM system sales - Source: Wohlers Report 2018

What is Agile Manufacturing?

Agile Manufacturing, or agile production (often simply “agile”), is a systematic method for increased flexibility-of-production capabilities within a manufacturing system that occurs without sacrificing productivity. While mass production and lean manufacturing focus on continuous production of standardized products and the reduction of waste for, at best, mass customized goods, agile - in sharp contrast - focuses on digitization methods to enable more flexible production capabilities.

This increase in flexibility enables companies to act more customer-centric, as they can deliver product modifications throughout its whole lifecycle or even truly customized products, with less time to market. To achieve this, companies make use of modern algorithms for data-driven automatic product design and demand prediction, as well as fully digital production methods that can produce where and when an object is needed. The result: streamlined processes, decreased costs and shortened logistics chains. Agile Manufacturing is thus built on principles that are very similar to the ones that powered the growth model of internet businesses like Amazon.

Thus 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 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 increasing efficiency by minimizing waste within a manufacturing system. The typical examples are reductions of unnecessary inventory, movements and waiting time. By minimizing these, Lean Manufacturing increases a company's’ efficiency but does not necessarily change its cost structures.

The recent advances in digital manufacturing on the other hand are much more likely to have a direct impact on a company’s cost structure because it reduces the variable costs of production. This includes simultaneous production in the same machine from multiple digital design files, which removes one of the highest costs and barriers to flexibility in production: machine tooling. With smart software solutions the entire production planning and execution can be automated and thus significantly reduce the required labor costs for manufacturing. As another example, additive manufacturing can simplify complicated assemblies and remove or minimize the respective needs to put the various parts together.

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

Today, many use cases are still more expensive in additive compared to conventional manufacturing, but this is due in large part to a lack of clarity in proper business cases, as well as the large amount of post-processing that needs to be performed on AM parts to prepare them for end-use. Both of those factors are being substantially reduced each year as the technology matures.

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: they often 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
The Red Envelope of Netflix!

In 2007, Netflix began streaming video and fundamentally flipped the equation. With streaming representing the shift to film digitization, 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 expectations are 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 expects to 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....

Can I see Agile Manufacturing today?

One industry that is already advancing towards Agile Manufacturing in the way their products are build is the automotive industry. Starting from individual, hand crafted vehicles in the 19th century, the industry moved on to serial production based on Fords’ idea in the early 20th century and true mass production after WWII - with well-known examples like the VW Beetle. As shown in the graph below, Lean Manufacturing was then introduced by Toyota towards the end of the same century, and as the speed of change continues to increase, the next revolution is on our doorstep. With Local Motor Labs we see a company that makes use of additive manufacturing to produce disruptive vehicles. Designs for their cars are no longer built by their in-house engineers but crowd-sourced to assure that the newly designed vehicles match the exact clients’ need. Although such a fully automated design process is not representative of where we are today, the trend towards truly customized vehicles enabled by additive manufacturing processes is becoming increasingly clear.

Evolution of manufacturing - from Conventional to Agile Manufacturing
Evolution of manufacturing - from Conventional to Agile Manufacturing

At the same time, companies such as Daimler and EOS are collaborating to build the “Next Gen AM” Factory which aims to enable fully automated production & post-processing for industrial-grade small serial production. These examples show us a move towards a new way to produce individual products - efficiently at a large scale.

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.

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