Tech is transforming the job shop market

One hallmark of digital-first businesses is their ability to democratize access, aggregate demand, and create reinforcing scale and network effects. Amazon is a great example. They’ve aggregated enough demand and built infrastructure to do things literally impossible for unscaled competitors (like make almost every consumer product available in days). Amazon’s model transformed consumer buying.

Netflix is another great example. It aggregated demand for streaming services and leveraged that scale to do things impossible for smaller competitors: create expensive owned content like “House of Cards,” which cost a staggering $100 million to produce. For Netflix, expensive in-house production made sense because the high fixed cost could be prorated across a massive subscriber base. Meanwhile, it provided exclusive content that people wanted to see, with no pricey content licensing fees on the backend. These benefits of scaling could be matched only by other scaled powerhouses with large subscriber bases—notably, Amazon. But Netflix pioneered a new business model that completely transformed the way people consume entertainment.

Failure Analysis

We could talk for ages about the massive successes in tech, but the failures are equally dramatic and instructive. The state of the art changed so quickly that companies that didn’t adapt—or weren’t lucky enough to be at the right place at the right time—disappeared. Companies like DEC, Compaq, SGI, Palm, Gateway, Iomega, EMC, 3Com, Borland, Excite, AltaVista, and many, many others were all major players at one time, but they either died, were acquired, or otherwise faded away.

In contrast, the technological whirlwind has only minimally affected fabricators. New machines make manufacturing more efficient, but beyond that, most job shops operate on a business model that would feel right at home in the 1990s or even earlier. I’m not being hyperbolic or glib. Before the internet, customers mailed or hand-delivered prints. Today, customers deliver prints and sometimes 3D models via email. The quoting process thereafter might leverage spreadsheets or (more rarely) customized software, but technological disruption for the most part stopped there. In other words, the medium became a bit more efficient, but business models remained materially the same.

Enter Software Automation

That’s changing now. There’s a large and growing class of manufacturing that lends itself well to software automation, and everything that fits into that category is going to be massively disrupted over the next decade. That includes anything a computer can automatically quote and analyze for manufacturability. An increasingly large number of companies, including my own, can receive 3D models inside a web browser, provide instant pricing and DFM feedback, and feed orders into a production system for rapid, efficient fulfilment.

I call these “universal component manufacturing services.” They are universal in the sense that manufacturing technologies like blanking, bending, CNC machining, injection molding, and 3D printing are used across hundreds of industries, and there’s a finite number of operations you can perform on a piece of metal or plastic to produce a part. For practical reasons, digital-first manufacturers tend to offer component-level services. Using 3D models, a computer can quote any number of individual parts, but it gets much, much more complicated to auto-bid and perform DFM on an assembly or a finished consumer product.

Today, it’s relatively easy to add instant (or rapid) quoting to your service repertoire. Off-the-shelf software now is available from multiple companies, making quoting a simple software license away. This accessibility has created an explosion of new web-enabled job shops. Of course, quoting is just a small piece of the operational puzzle, and direct manufacturers—including my company and some of our direct competitors—also have integrated vertically, building their own software stacks to support high-mix manufacturing at scale. Meanwhile, manufacturing marketplaces (brokers) have streamlined quoting and worked to connect buyers with traditional shops that might not be independently tech-enabled.

Change Is Happening

Collectively, the job shop component manufacturing market is in flux. Digitally enabled manufacturing is an idea whose time has come, and companies of all sizes are stepping in to compete. To me, this feels a lot like the kind of chaos that surrounded the nascent tech industry. It’s far more niche, but the parallels are hard to ignore: Tech enables a new way of doing business; scores of companies are founded (or upgraded) to compete; access to services is democratized; aggregation and scale are enabled through online-first models.

What comes next? If it’s anything like what happened in tech, traditional businesses that don’t modernize or differentiate will struggle to compete. Many will simply close as their owners retire (a factor unique to the manufacturing space and its aging workforce and ownership structure). Meanwhile, a relatively small number of online job shops will grow to fill the capacity vacuum.

Aggregated demand will allow these businesses to build scale, capability, process, and brand barriers that make it difficult for unscaled manufacturers to compete. Brokers will leverage their quoting technology and networks to improve ordering experience but will keep market share only for as long as it takes direct manufacturers to bring the capability in-house. All other things being equal, digitally enabled direct manufacturers will be faster, cheaper, more communicative, and more consistent than brokers and marketplaces.

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Read the full article at The Fabricator