Decentralization and Localization of Production

CMR640
Managing Technology
Decentralization
California Management Review
2017, Vol. 59(2) 5–23
© The Regents of the
University of California 2017
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DOI: 10.1177/0008125617695284
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THE ORGANIZATIONAL AND ECONOMIC

CONSEQUENCES OF ADDITIVE
MANUFACTURING (3D PRINTING)
Avner Ben-Ner1 and Enno Siemsen2
SUMMARY
The future organizational landscape may change drastically by mid-century as a result
of widespread implementation of 3D printing. This article argues that global will turn
local; mega (factories, ships, malls) will become mini; long supply chains will shrink;
many jobs will be broadened to combine design, consulting, sales, and production
roles; and large organizations will make room for smaller ones. “A once-shuttered
warehouse is now a state-of-the art lab where new workers are mastering the 3D
printing that has the potential to revolutionize the way we make almost everything.”
[President Obama, State of the Union Address, 2013].
KEYWORDS: technological change, supply chain, organization structure, disruptive

technology, economies of scale, industrial organization
M
ajor technological change is underway in the form of addi-
tive manufacturing (AM), also referred to as 3D printing. AM
is poised to transform many aspects of production, distribu-
tion, the supply chain, organizations, and the global economy.
Although many people are aware of 3D printing, only few recognize the extent
to which this technology may impact the world. Numerous small companies and
many large corporations are starting to take notice, and some of them foresee the
1University of Minnesota, Minneapolis, MN, USA

2University of Wisconsin–Madison, Madison, WI, USA
5
This document is authorized for use only in PAULA BROITMAN's PRE-2023 FUNDAMENTOS DE LA TEORIA Y PRACTICA DE LA INNOVACION
at Pontificia Universidad Catolica Chile (PUC-Chile) from Aug 2023 to Dec 2023.
6 CALIFORNIA MANAGEMENT REVIEW 59(2)
revolutionary implications of AM. For instance, UPS is in the process of establish-

ing 3D printing factories around the world that will produce just about anything
for other companies,1 apparently expecting a future shrinking of its delivery
business due to a drastically shortened supply chain for many producers. The city
of Dubai, using a 20-foot-tall printer with a 120-foot-long robotic arm, has built
the first 3D printed office building,2 and Dubai is planning to have a quarter of
the city’s buildings 3D printed by 2030.
This article explores some of the implications of large-scale adoption of
AM. This is a predictive, and not a descriptive, article. We examine evolving trends
that are inherently uncertain and subject to many scientific, technological, politi-
cal, economic, and social developments that will unfold in the decades to come.
Our analysis points to a plausible scenario of future organizational and economic
changes; however, the numerous contingencies that bear on this scenario may
produce a different outcome than the one we envision here.
Scale economies are among the strongest forces shaping the landscape of
business. High volume decreases unit costs through learning, bargaining power,
spread of fixed costs and overhead, capacity utilization, technology access, con-
tainer utilization, and more. Having a larger market share means improved
productivity and lower average cost. As Alfred Chandler has emphasized, this
relationship drives the concentration of industries and the size of organiza-
tions.3 Organizations that operate below the minimum efficient scale are driven
out of the market or are acquired; economies of scale serve as barriers to entry
for new firms. Therefore, any technological change that impacts scale econo-
mies should be carefully studied for its organizational and economic
implications.
Historically, technological change has often meant increased scale econo-
mies. The English enclosures and nineteenth-century factories, Stalinist collectiv-
ization and industrialization, and current Chinese product-based industrial cities
all share in common the premise of economies of scale. AM (3D printing) may
reverse, for the first time in centuries, the march to larger scale and can therefore
revolutionize the organizational and economic landscape.
Whereas the unit cost in traditional manufacturing (TM) methods declines
as the volume of production increases, the unit cost under additive technologies
is constant, independent of the scale of production.4 If the costs of 3D printing a
product are not much higher than the unit costs associated with the minimum
efficient scale of TM, many smaller firms will have room to compete in a market.
Particularly in industries where customers value variety and customization, prod-
uct life cycles are short, and delivery lead times are critical, AM can already be a
more efficient technology for production than TM, since each of these factors
reduces the importance of leveraging traditional scale economies in the market.
Since firms using AM have no need to find distant buyers to achieve the necessary
scale for production, transportation costs will become a stronger force affecting
the industrial organization, leading to sales that are more focused on local and
regional markets in relation to the manufacturing site. This localization of
Decentralization and Localization of Production: The Organizational and Economic 7
production can transform marketing and sales, where today there are substantial
economies of scale. International trade in parts and finished goods will decline as
a result. Wholesale trade will diminish greatly. The distance between those respon-
sible for designing and manufacturing the product and the end-consumer will be
shortened. Supply chains will decrease in length and breadth as well; fewer com-
panies will be necessary to bring a product to market.
The costs of organization—dealing with agency costs and coordination
across the firm—increase with firm size.5 Smaller organizations are easier to man-
age; they are more transparent and employees are easier to motivate to work on
behalf of the organization. For all these reasons, smaller firms are faster, nimbler,
and more adaptive than larger ones. In the absence of economies of scale, large
firms are at a disadvantage.
In sum, AM may well usher in the third industrial revolution6 that will
have far reaching organizational, economic, and social consequences. This revolu-
tion will unravel much faster than the first two. Possibly within a generation, local
development, local production and consumption, and a more decentralized econ-
omy will prevail, and individuality and creativity will flourish. However, this
upheaval will imply major disruptions in labor markets.
The time to explore the consequences of this possible impending revolu-
tion is now. Despite President Obama’s comments about AM in his 2013 State of
the Union Address, most of the public seems to be unaware of the massive
implications of what engineers and designers in research labs in many universi-
ties and companies are rapidly developing. With rare exceptions,7 there is no
academic research about the social and economic implications of AM. The num-
ber of patents related to AM processes and materials is increasing exponen-
tially,8 and key patents are about to expire (Stereolithography patents by 3D
Systems and patents from Stratasys). Numerous new entrants will spur innova-
tion and lead to increased versatility and decrease in costs of the technology. The
sale of industrial 3D printing systems is experiencing exponential growth, indi-
cating increased penetration by AM.
Business leaders, academics, regulators, and the general public need to dis-
cuss the implications of this technological change to manage the resulting transi-
tion. The objective of this article is to promote such discussion and to outline
plausible future developments and call for more research.
Research Methodology
Technology is a driver of change in organizational structure and in the
demand for skills.9 Any investigation into the implications of technological change
starts with a characterization of the important attributes of the technology, followed
by an examination of channels through which it affects demand for skills and the
internal organization of firms. In this article, we analyze the transition from TM to
AM technology, and its implications for organization structure and skills, using a
broadly similar research strategy as employed by the researchers cited above.
We studied the literature on AM technology in mechanical and industrial

engineering. We followed the press, newsletters, and blogs that report on devel-
opments in the AM industry, as well as announcements by companies and indus-
try associations. We also talked to engineers and executives from a leading AM
company (Stratasys). On the basis of these diverse sources, we forged an under-
standing of production, use of materials, operational needs, and capabilities of AM
technologies. We then presented our ideas to executives in diverse industrial fields
to gauge their reaction and listen to their comments.
We emphasized factors that affect the size of organizations and the opera-
tions they conduct, seeking to capture only the “big picture” of the organizational
and economic landscape. We therefore emphasize the critical role of economies of
scale, the sourcing of materials and other factors of production, the tasks employ-
ees have to carry out, and how all these link to organizational size, physical loca-
tion, and relationship to customers.
Additive Manufacturing
AM technology was developed in the 1980s. It has been used mostly in
prototyping, but it is now being used increasingly in the manufacturing of parts
and finished goods. In a fashion that resembles putting icing on a cake, a 3D
printer emits materials from one or more spouts that add layer upon layer to
generate a product; the process is guided by computer-aided design or manufac-
turing software. Tools or molds are usually not required. Information about AM
techniques and materials is now widely available.10
AM is a generic and flexible production method that enjoys a high degree
of automation. It represents an extreme instance of flexible manufacturing tech-
nologies.11 The typical 3D printer can produce most parts or products as long as
the material used by the printer has adequate properties, and as long as the prod-
uct fits into the dimensions of the printer. In many cases, the entire product is
produced at once, with no further assembly required. For large items such as cars
and buildings, the number of parts (and therefore the amount of assembly work
needed) is dramatically lower than with traditional methods. In TM, a set of
machines produces a sequence of similar products at high speed; in AM, printers
can work in parallel on an order of very different products, but each printer oper-
ates at relatively low speed (although the speed of printing is increasing quickly
with technological developments in this area).
AM technology is evolving rapidly and new materials and processes that
expand the scope of what can be printed are revealed daily: large area printers
that can print large products such as airplane wings and houses, printers that use
multiple materials including conducting ones, rapid printing, and much more.
The new 3D printers and scanners showcased at the recent the Consumer
Electronics Show (CES 2017) represent a leap in the ability to produce at high
speed with a variety of materials at low cost that greatly surpasses what was avail-
able just one year ago.12 As mentioned earlier, the number of patents applied for
and granted in this area is rising exponentially, and not a day goes by without an
announcement of a new material, process, or application of AM.
Economies of Scale, Organization Costs, and Market Structure

One key reason why AM reduces the minimum efficient scale in a market
lies in the fact that there are no fixed costs of making specialized molds, tools,
or equipment that have to be amortized over a large production volume.13 As
long as a digital model is fed into the printer, the machine can produce any fea-
sible product without having to first create a costly production-grade mold or
tool. The technology thus allows scaling capacity more closely to the needs of
the market. No large investments are needed for the lumpy increases in capacity
often experienced in TM systems.
Whereas TM often requires a high utilization rate for efficient production,
AM can be easily shut down temporarily, or capacity can be redirected to the
production of different types of goods. As a result, whereas traditional plants
that produce for the mass market are much larger than those operating in the
same industry producing customized products,14 AM plants can be very small
without a loss of efficiency. The necessary volume to utilize printers can be
achieved by the extended scope of the plant and does not require high scale in
a single product. Some economies of scale persist in AM manufacturing—for
example, in build-room utilization15 as well as through warm-up and cool-down
periods.16 Yet the significant fixed costs of tooling do not have to be amortized
over large volumes.
Learning of new production processes is another source of scale economies
in manufacturing. Production costs follow a classic learning curve such that higher
volume leads to more learning and therefore lower costs. Compared with TM, AM
is more capital intensive with substantially lower final assembly needs, which
greatly reduces the need for organizational, team, and individual learning.
Furthermore, any machine-specific learning in AM can apply to a wide range of
products, whereas in TM, learning is often very product-specific since the machines
involved are less flexible.
Economies of scale may be present not only in the technology of produc-
tion but also in the economics of buying materials, parts, and support services,
and of selling products. Large firms enjoy greater purchasing power than small
firms. These advantages of scale are less relevant to AM firms than TM firms. AM
requires far fewer parts than TM, which reduces a firm’s dependence on suppliers.
Purchasing in AM firms concerns mostly raw materials for printing; the same
materials are used for a variety of products, and thus, they can be purchased in
bulk. Achieving a relevant scale for the purchasing of AM raw materials is thus
easier than achieving a similar scale for purchasing in TM. Similarly, forecasting
needs for AM mostly concern raw materials and capacity, creating aggregation
effects through scope and less through scale in a single product. AM-based firms
thus gain economies of scale in forecasting, compared with TM-based firms.
Similarly, benefits of marketing and sales of products accrue to large com-

panies that operate in large markets. The need to reach markets located at great
distance from the site of manufacturing is drastically lessened under AM, which
allows selling to consumers who are in proximity to the producer. Proximity adds
greater transparency for the consumer. Social responsibility is enhanced by selling
products in the community in which they are produced, since workers and con-
sumers overlap in terms of social and even family ties. This is an important con-
sideration because large firm size and brand visibility often act as a repository of
reputation and trust that are costly to maintain. Local firms using AM do not
require expensive means for generating and maintaining reputation as do large
firms located in faraway places.
Distribution management is a related source of economies of scale, requir-
ing complex logistics for avoiding the inefficiencies associated with sending half-
empty containers or half-empty trucks over long distances. AM will allow more
on-demand manufacturing closer to the customer, reducing the need for scale to
achieve efficient distribution. Transportation needs will be concentrated in the
more aggregated supply of raw materials.17 Not only is it easier for firms to achieve
efficient scale in raw materials that aggregate over their product range, but such
materials also have better transportability (less spacing out of container capacity)
than the finished products they are used for, leading to more efficient distribution.
We summarize key differences between TM and AM in Table 1.
In sum, economies of scale associated with the procurement of supplies,
production, and sales/distribution of products are greatly reduced under AM. But
what is the optimal plant and firm size under AM? Before answering this ques-
tion, we first have to investigate the optimal plant and firm size under TM. If
economies of scale in production and other operations go on indefinitely, then the
optimal firm size appears infinite, or, in practical terms, a single firm could capture
an entire market. This is rarely the case, due to the increasing cost of organization.
Organization theorists have identified various problems associated with running
any organization, the severity of which increases with organization size.18 One set
of problems (agency problems) arises from the need to get self-interested employ-
ees in various roles to pursue organizational rather than personal goals. Another
set of problems (technical problems) arises from the need to coordinate and com-
municate across the organization’s individual employees and units. The costs
associated with dealing with these two sets of problems represent the cost of
organization.19
Organizations have an arsenal of organizational tools to deal with these
problems: selective assignment of decision making, varied and expensive incen-
tives, monitoring and supervision, recruiting, selection and selective promotion,
and much more. The severity of agency problems increases with the size and
complexity of the organization because it is hard to observe, interpret, direct, and
coordinate the actions of self-interested employees. Hence, a larger number of
rungs in the hierarchy and narrower spans of control become necessary, which
increases the organization’s reliance on costly tools for coordination
TABLE 1. Comparison between Traditional and Additive Manufacturing on Various

Dimensions.
Traditional Manufacturing Additive Manufacturing
Production cost Economies of scale can lead to very low Unit cost does not vary much with scale,
unit-cost but require a large volume of no cost imperative to sell large volumes
sales of specific products of specific products
Design requirement Strict design-for-manufacturability Reduced design-for-manufacturability

requirements restrict product design requirements allow novel designs
possibilities
Specialized molds and The fixed cost for product-specialized No fixed cost for product-specialized tools
tools tools is distributed across all units and molds
produced
Production speed of Serial process that depends on the speed Parallel process that depends on the
order of the critical path, as well as the degree speed of a printer and the number of
to which bottlenecks lead to queues printers used
Delivery speed of order Globalization of production entails long Localization of production enables fast
transportation lead times, reducing delivery upon completion of order
delivery speed
Capacity utilization Specialized equipment requires high Flexible equipment requires volume across
volume in specific products to achieve different products to achieve adequate
adequate utilization utilization
Capacity expansion Lumpy expansion opportunities imply Easier to adjust capacity to demand
that plants often operate at over/under since capacity can be bought in smaller
capacity increments
Learning curve Production process may require product- Learning is machine-specific and applies to
specific learning, generating economies different products made on the machine
of scale
Forecasting Detailed product mix forecasting can lead Forecasting shifts to aggregate raw
to insufficient statistical aggregation to materials and capacity, making
make accurate predictions forecasting more accurate
Bill of materials High parts count due to product portfolio Low parts count due to the ability to
proliferation and specialization of supply integrate parts in the printing process
chain partners
Purchasing Separate bill of materials in product Raw material needs reduce complexity of
portfolio can lead to a large number of purchasing portfolio and allow efficient
suppliers and low volume in supplied scale in purchasing with less demand
components volume
Transportation Leveraging economies of scale requires Localized production means less

aggregating global demand, increasing transportation of parts and finished
complexity of transportation of parts goods; transportation needs focus on
and finished goods raw materials, where demand is more
aggregated and transportable
Material use Subtractive process leads to excess Additive process leads to less excess
material and waste material and waste; recycling of printed
and other materials a promising
possibility
Marketing Reaching global markets requires Local production allows tapping into social
investment in brand to create global responsibility and local networks to
awareness and trust create awareness and trust
and communication among more individuals and units. This, in turn, increases
complexity in multiple reciprocal interactions, all of which entail management
costs that rise faster than the number of employees in the organization.
In sum, at a certain firm size, the declining unit cost of production and
other operations arising from economies of scale is offset by the increasing unit
cost of organization. That size is associated with the firm’s minimum cost, which
corresponds to the long-run optimal size of the firm.
In comparison, smaller AM firms will not only have lower costs of organi-
zation due to their lower possible scale but will also be organized differently than
larger TM firms. There will be fewer layers of management, employees will enjoy
more discretion in decision making, there will be less monitoring, and there will
be fewer complex incentive schemes.20
To see the differences between the two types of firms, suppose that a large
company employs TM technology and enjoys economies of scale. Assume now
that the company introduces AM in its plants. The company will break up its large
plants into many smaller plants. Each of these smaller plants is cheaper to run
because of the lower cost of organization. These smaller plants will be relocated
closer to customers in order to economize on transportation, to be able to respond
rapidly to changing local demand, and to better collaborate with customers. The
drastic simplification of the supply chain and the local orientation of the plants
will limit or eliminate the economic benefits from having centralized purchasing
and sales and marketing. The benefits of holding together the large company,
once most functions are decentralized or outsourced, may well disappear. If the
brand is important, the company may switch to a franchising alternative, like
many retail shops, or break up altogether and find alternatives to branding.
The organizational landscape may therefore change drastically under AM.
The degree of concentration in many markets may decline precipitously.
Organizations can be substantially smaller and more geographically dispersed.
The distribution of occupations will also change: fewer production and assembly
workers; and low-skilled store attendants, packaging workers, and many trans-
portation workers may be largely replaced by employees who design and consult
with customers to sell and produce customized goods. Many companies may
become locally owned, possibly by their employees, as it is the case with many
professional organizations of architects, designers, consultants, lawyers, engi-
neers, and physicians.21
AM in Action: Medical Devices and Spare Parts Inventory

One industry that has already been affected by the advent of AM is medi-
cal devices. For example, prosthetics for children must be customized, and a new
prosthetic is required every few months as the child grows. In 2011, Ivan Owen,
a puppet artist, created a mechanical hand as a prop and posted videos of it
online. This mechanical hand attracted global interest, and Owen developed first
finger prosthetics, and eventually a whole hand, using a simple 3D printer. He

was joined in his development efforts by parents of children in need of prosthet-
ics and other AM designers. This open-source development of a physical product
involved rapid feedback cycles—parents could print out a new design overnight,
and test whether the new design was improved on the next day by watching
their children interact with the new version. These efforts yielded a 3D printed
hand that can now be printed for $50 and assembled within two hours.22 The
nearest substitute produced by TM has a price tag of more than $1,000.
This example illustrates the effectiveness of AM in a market with high
product variety in combination with very short production lead time (so no child
has to wait long for a new hand). It also illustrates the decentralized nature of AM:
there is no single firm behind the design and production. In this case, there is not
even a firm involved but a loose network of interested agents that mostly work
pro bono. While this is an extreme example, AM has been adopted in many medi-
cal device sectors due to the ability to rapidly deliver customized products. Hearing
aids, for example, are by now completely produced via AM.23
AM is also making a growing impact on the production of spare parts.
Product variety is enormous in the spare parts business; parts have to be kept in
inventory for all supported products, including old ones that have long gone out
of production. Lead times are critical in the business too, since spare parts are
often ordered in response to a product breakdown. Parts have to be kept in inven-
tory as close to the customer as possible. Demand is very difficult to predict due to
the intermittent nature of demand that naturally comes from serving highly dis-
aggregated markets. The right part is often not available at the closest warehouse
and thus has to be airlifted from more distant locations. Such an operation is very
costly, so it is not surprising that manufacturers in the appliance and aerospace
business are exchanging their piles of spare parts for 3D printers that can create
these parts on demand. For example, Airbus is already printing many airplane
parts when and where they are needed, using a blueprint database maintained at
headquarters and accessed from a printing facility owned by a third party.
Spaceships operated by NASA are being fitted with 3D printers to provide capacity
for spare parts, as are U.S. Navy aircraft carriers. Appliance manufacturers are
actively exploring the opportunity of replacing their spare parts warehouses with
3D printers attached to the cars of each service technician. Some stores have
introduced 3D printers to supply outdated parts (e.g., Lowes Stores).24 The tech-
nology thus enables outsourcing the whole spare parts and post-purchase main-
tenance aspect of a business to third-party service, logistics, and manufacturing
providers, such as UPS.
Examples of Future Disruptions: Apparel and Car

Manufacturing
The clothing and apparel industry is iconic of the first industrial revolu-
tion. Car manufacturing is emblematic of industrial capability. Production in both
industries takes place mostly in large facilities, with long and complicated supply
chains, and with materials and finished products traversing the world.
Textiles
Before the invention of the mechanical loom, textile and apparel pro-
duction took place in small workshops and homes. The mechanical loom was
powered by flowing water, mules, and later by steam generated by burning
coal. Production facilities have increased in size and moved around the world
in an ongoing search for cheaper inputs, which could not move easily, particu-
larly labor and energy. This trend was facilitated by the availability of mega-
ships that aggregate shipments from numerous factories which are stored
temporarily in mega-ports in Karachi, Tianjin, and Mumbai to be shipped to
other mega-ports in Long Beach and Rotterdam to be then dispersed by mega-
trucks and mega-trains to mega-distribution centers to be sent to stores (many
of them mega-stores) located in different shopping malls (many of them
mega-malls).
The future of the apparel industry may be very different. When Karl
Lagerfeld, the now 83-year-old designer for Chanel, was at the July 2015 fashion
week in Paris, he presented 3D printed dresses based on his traditional designs
and declared 3D printed fashion as the way the future will unfold.25 Danit Peleg,
a 28-year-old, produced her own fashion line on home 3D printers, taking hun-
dreds of hours to produce her line, only a few months after learning about 3D
printing.26 Marcus Foley, Aaron Rowley, and Joseph White (a 20-some-year-olds
trio of biomedical, mechanical, and computer engineers) developed a process that
prints cotton and other materials into low-end apparel and haute couture.27 There
are numerous commercial initiatives to use AM to produce clothing commercially
using diverse natural and synthetic materials.
How will these clothes be sold and produced? One scenario entails a buyer
visiting an online site where different dresses are presented, as it is currently done
on many websites. The buyer uses a 3D scan of herself and tries on, virtually, dif-
ferent dresses in different poses. She purchases the right to print a dress and sends
it to the printer of her choice, probably at a local printing service that will deliver
it to her.
Alternatively, the buyer goes to a clothing store at a nearby shopping cen-
ter. Consultants and designers, depending on the store’s market niche, will help
the customer, including showing samples of different printed materials, projection
of life-size holograms of the customer trying on different garments, and possibly
print the garment. Printing facilities will be available in most shopping centers,
which will serve multiple stores that sell diverse products. Because there will be
no inventory except for samples, stores will be much smaller than current stores.
Customers will be able to pick up their purchases in the shopping center’s printing
facility. If some assembly is needed, staff can help at the printing center or in the
store. In many cases, if customers do not like the final product, they will be able
to return and recycle the product immediately.
The various costs of carrying an inventory of finished goods in such a model

will be almost eliminated. New fashion designs will reach the market immediately
after first being shown on a runway. The fast fashion business model has shown
that the ability of a value chain to deliver new styles into stores quickly is very
profitable. AM will allow fashion firms to further decrease this critical lead time,
while also allowing them to massively cut their finished good inventory and cus-
tomize the clothes to the customer. Removing space requirements for keeping
inventory from retail stores enables these stores to be located in expensive loca-
tions with high customer contact; retail showroom concepts such as those by
Bonobos and other online retailers illustrate that such a store concept can be very
profitable.28 The implications for textile mills around the world will be enormous.
The way most people dress will change drastically.
Cars
Making a car is much more complex than making a garment. There are
thousands of parts in a conventionally manufactured car, and those need to be
assembled by humans or robots. AM greatly simplifies this process. The bill-of-
materials for a typical TM car contains tens of thousands of parts and compo-
nents. In contrast, Local Motors—which operates four AM microfactories that
make cars, trikes, furniture, and more29—is producing a minicar with about 50
parts.30 Space requirements for AM production are much smaller and supply
chains are much shorter. Many other companies are working on AM car pro-
duction, with several common attributes: few parts and rapid and easy assem-
bly, easy customization, small production space requirements, and collaborative
design (often open source). Many of these startups use various plastics, just like
TM cars, with metal being increasingly incorporated.
The future sale of AM cars may resemble that of garments, with notable
differences that stem from safety concerns, infrequent purchase, and cost. A local
car store may sell different models/designs. It will carry a fleet of test cars, and
customers would customize their cars and then have them produced either at the
store if it is large enough to maintain an area printer and mechanics (a minor
remnant of economies of scale), or at a local or regional facility that produces
multiple designs. The very small number of parts will allow skilled mechanics to
assemble multiple designs. Cars that require special materials or assembly will be
made in specialized regional facilities.
The market for durables such as cars, where asymmetric information and
safety are major concerns, will impact how and where cars will be manufactured
and how regulation and reputation will be employed. For example, designs and
materials will have to be approved by a regulatory agency and manufacturing
sites will have to be inspected by regulatory bodies (as is the case with TM facili-
ties). Familiar market-based solutions will be employed as well, such as bonding
of individual manufacturers, provision of warranties, and other measures that
substitute for the reputational mechanism associated with brands sold around the
world. However, gone will be the large car dealerships, along with the large
factories and the large companies that manufacture them. Instead, many small
manufacturers that can produce a range of brands will be located in many places,
with a showroom to test-drive cars, but no inventory.
Industries Disrupted
The discussion above helps identify the markets that AM will likely influ-
ence in the near future. Markets most likely to be disrupted first have small pro-
duction volumes per variant, high product variety requiring a large number of
parts, high demand for customization and individualized products, and a par-
ticular need for local production and fast lead times.31 These factors explain well
why 3D printing has already revolutionized industries such as hearing aids and
spare parts. However, current developments are only the harbinger for drastic
and dramatic transformation of manufacturing in the future. As noted earlier,
all products—from very simple ones (such as mugs and containers) to the most
complex ones (such as human organs and electronic products), from the smallest
ones (such as ball bearings) to the largest ones (such as cars, missiles, airplanes,
and buildings)—can potentially be 3D printed, and therefore, all industries that
manufacture goods are potential candidates for major disruption.
In the near future, AM may not lead to lower unit costs in comparison with
a traditional plant operating at the minimum efficient scale of mass manufactur-
ing, but the total costs of serving customers through AM may already be lower in
some industries compared with TM methods. Since AM technologies are still
improving, both in terms of costs as well as in terms of their flexibility, more and
more industries will be disrupted by the advent of this new technology.
Transportation is another sector that will be disrupted. Whereas today the
Suez and Panama canals are being expanded to accommodate the global trade in
goods, the changes in the location of production as well as the structures of supply
chains will transform this industry beyond recognition. As noted earlier, transpor-
tation needs will shift from components to raw materials, and finished products
will require transportation over much shorter distances (print shop to home) than
before (global manufacturing site to retail outlet). It would be prudent for compa-
nies in the business of container shipping of components and finished products to
explore right now how to invest in AM to hedge their business (as UPS did).
Industries Not Disrupted

There are, of course, some industries that will be less affected by AM.
Clearly, manufacturing industries that rely on materials that cannot be printed
will feel little change. Many organic materials and agricultural products will
still be grown, but the list of such materials shrinks continuously. For some
time, the pharmaceutical industry seemed immune to AM because of the
materials involved in production, and because of the high economies of scale
in production. Recent advances show that a disruption is possible even in this
industry.32 The first 3D printed drug (Spritam) was approved by the Food & Drug
Administration (FDA) in August 2015.33 In the past, the automotive industry
was sometimes cited as being immune to AM due to its high-volume produc-
tion,34 yet even here the industry is seeing more and more applications,35 and
the likes of Local Motors are threatening to disrupt the industry through a com-
bination of open design and 3D printed cars.
Industries in market segments that offer high volume demand of very stan-
dardized products without much uncertainty or variability may be shielded the
longest from the disruptive effects of AM. For example, while fashion clothes may
soon become printed, the production of standardized white undershirts or screws
may for a long time continue unabated in its traditional form. Similarly, although
some electronic products can already be 3D printed, their customization often
comes through software rather than hardware. To be sure, the industry is working
rapidly on innovations in this area: the Voxel8 printer allows printing with mul-
tiple materials and thus creates the ability to print conducive paths into a product;
and the Dragonfly 2020 printer prints PC boards.36 However, semiconductors
themselves cannot be 3D printed yet, although the current process of semicon-
ductor manufacturing is in essence an additive process. Thus, the complete 3D
printing of electronics may be some time away.
Service industries are of course not affected directly by changes in manu-
facturing technologies. However, as we have seen above, changes in manufactur-
ing industries will have a large impact on other industries, including retail and
wholesale trade, transportation, product design, and marketing.
A Time Frame for Disruption

The adoption of 3D printing will arrive in stages. In the current, nascent,
and evolving stage, 3D printing is confined to industrial applications, such as spare
parts inventory. The next stage will reflect a growing familiarity with the possibili-
ties entailed by AM, with increasing numbers of companies exploring the benefits
of 3D printing for their operations and supply chains. Printers that can integrate
different materials and print circuits will allow a much wider range of industrial
applications. Yet printers and materials will for some time remain too expensive
for widespread use by end consumers to replace commercial production.
Importantly, the technology currently requires considerable knowledge
and expertise—particularly for printing metal—that are, for the time being, in
short supply. Such knowledge may lead to the establishment of relatively large 3D
printing plants that take advantage of economies of scale in knowledge; such
plants may dominate some market segments. However, with the expansion of
education and training relevant to AM, such economies of scale and market domi-
nance are not likely to last long. 3D printing also currently requires significant
manual labor for pre- and post-processing of printed parts.37 Again, we believe
that this labor component is temporary and will be reduced as software, hard-
ware, and materials for 3D printing progress.
Our prediction is that with widespread adoption of 3D printing in the

apparel industry, driven by technical improvements in process and materials,
adoption of AM will move to the third stage because consumers will demand
quick access to 3D printing capacity. This stage will see the rise of specialized
neighborhood 3D print shops, much like the copy shops or Internet cafes of
bygone times. While prototypes of such shops already exist, serving an innovative
segment of the consumer market, larger scale adoption by consumers will require
a much broader distribution and use of these shops in society.
Finally, as 3D printing is further commoditized, the flexibility, cost, and
usability of printers will make them universally accessible and they may enter many
people’s homes. Whereas existing consumer-oriented printers are confined to small
items made mostly of plastic, the advent of more flexible, multi-material printers
with electronic circuit printing capability may entice many households to own one.
At this stage, 3D printers may become as ubiquitous as washing machines and laser
printers, producing products based on models downloaded from the Internet.
Implications for Management Theory and Practice

Much of modern organization theory is built on the concept of the large
industrial firm. Emblematic of the spirit exhibited by many scholars, Alfred
Chandler’s writings38 saw the advent of modern management and business
administration as a response to the need to create effective large organizations
that can reap the scale economies brought by the first and second industrial
revolutions.
Our article demonstrates that AM will refute the idea that technological
development necessarily increases economies of scale. AM will, in our analysis,
reverse the trends toward organizational centralization and globalization of pro-
duction and distribution; these will give way to decentralization and localization.
These new trends will require different organizational structures and supply
chains. The shift to smaller and flatter organizations populated by employees who
have a broad range of skills and responsibilities will require a different set of man-
agerial competencies than those demanded today in most management positions.
The tasks of executives in decentralized and localized organizations will be less
managerial and more entrepreneurial than those in most organizations today. The
field of supply chain management will be drastically altered.
During the period of transition to new organizational structures, explora-
tion of new business models will become increasingly important as incumbent
organizations will deal with an existing workforce and organization structure but
at the same time will adopt AM technology in parts of the organization.
Organizations will need to learn and manage this duality. Management scholars
have an important role in developing designs for new organization structures,
supply chains, distribution modes, marketing and sales functions, inter-organiza-
tional relations, and other economic activities to fit the demands imposed by
widespread adoption of AM technology.
Discussion and Conclusions

The economic and organizational landscape of manufacturing will change
drastically within one generation. Whereas the first and second industrial revo-
lutions ushered and consolidated the large corporation, the third industrial revo-
lution will democratize, decentralize, and localize activities in small companies.
Production capacity will become generic, thus owned and possibly traded by
many different actors not necessarily tied to a particular industry. The design of
products will change to reflect the benefits of AM, allowing firms to reduce stan-
dard constraints imposed by the current design-for-manufacturability paradigm.
Product designs will proliferate, the results of individual and collaborative design
and extensive experimentation. This will enable developed and less-devel-
oped economies alike to transition from concentrated capitalism to distributed
capitalism.39
Localization will reverse and replace globalization. Transportation by sea,
land, and air will be drastically reduced. International trade will be transformed,
with goods trade significantly diminished. This will lead to massive shifts in the
current accounts of countries, with possible corresponding macroeconomic
dislocations.
These changes will radically alter supply chains. Because there will be
fewer parts, fewer companies will participate in the chain of firms that bring a
product to market. Similarly, since production will take place closer to the cus-
tomer, and will likely be pulled by the customer rather than pushed into the mar-
ket, fewer companies will be required to organize distribution and share market
risk for any particular product. This will massively reduce the supply chain coor-
dination challenges that have appeared after supply chains became more complex
as a result of globalization. The firms that print products will likely be close to the
customer, thus providing more direct access to market demand. Their main fore-
casting needs will be in aggregate capacity and materials, drastically reducing the
complexity of production planning processes. Their suppliers, in turn, will largely
deal in materials, for which demand is easier to predict than the demand for
today’s frequently specialized components.
The skill and occupational demands of the new economy will change. The
relatively menial jobs of assembly, retail sales, packaging, shipping, transporta-
tion, construction, and more will be replaced by the more analytical, integrative,
creative, and autonomous occupations of designers, consultants, engineers, prod-
uct developers, and such. This transition may be difficult and even destabilizing
for some societies unless it is carefully assisted through education, training, and
solid understanding of the direction in which the economy and society are going.
Barriers to entry for new businesses will fall. Startups will require much
less capital than today and will not need complex supply chains and distribution
networks to bring physical products to market. It will take less time to setup new
supply chains, and the lead time for startups to deliver new products may mas-
sively decrease. Kickstart campaigns can currently take up to a year to deliver
products, even though design and testing of such products is often well advanced.
AM can further shorten this critical lead time.
AM will present substantial legal and regulatory challenges. For example,
what is the role of the Food and Drug Administration if medical devices are devel-
oped and manufactured by a decentralized network? How can products be effec-
tively traced to their origin? Who is liable for damages for a malfunctioning
product? Numerous intellectual property issues arise in the context of this decen-
tralized technology, with ideas and software developed by individual producers,
consumers, and networks, and with vast personal production opportunities.
Scholars and practitioners have already started to ponder the legal implications of
AM.40
Technological developments in energy production complement AM and
will deepen the transformation of the economy toward localization and decentral-
ization. The energy sector has two important sources of economies of scale: large
power generators that are more efficient than small ones, and the power grid that
allows aggregation of energy demand. Improvements in solar and wind energy
generation at the community level may in the future allow for a departure from
large power generators, and the grid may be complemented or replaced by local
energy storage solutions.
AM has the potential to be a leapfrog technology, a method for developing
countries to sidestep the path of traditional industrial development, akin to the
role cell phones played in creating information networks and payment methods.
AM allows for the decentralization of activities, the knowledge required to use the
basic technology is not too difficult to acquire, and small players can introduce
new products at a small scale without requiring access to global supply and distri-
bution chains.
The transition from a TM-based national and global economy to one
grounded in AM technology presents many opportunities for social and economic
progress. However, the shift will be difficult and even destabilizing for some econ-
omies. In particular, substantial economic and social dislocation may be experi-
enced by developing economies that at present produce goods that in the future
will be 3D printed in the countries of consumption. The opportunities for local
development presented by 3D printing facilities that require relatively low invest-
ment may well compensate for and even exceed the losses from the diminished
role of employment in TM factories. The transition from a TM to an AM economy,
particularly in developing countries, may be facilitated through education, train-
ing, redirection of the use of facilities, and investment in infrastructure based on
AM rather than TM needs.
The picture of the future organizational and economic landscape that we
drew in this article is based on assumptions regarding the capabilities of AM tech-
nologies, which we summarized as a drastic reduction in economies of scale and
extensive shortening of the supply chain. We then analyzed the implications of
these changes for organization size, the cost of organization, and the locus of
production, and we concluded that these forces will drive production and sale into
small organizations that are separately owned—hence, the “decentralization and
localization” in the title. However, there are strong economic and political forces
that will seek to limit the extent of decentralization and localization, especially if
accompanied by decentralized and local ownership, as we expect will be the case.
The Internet, not more than two dozen years ago, had a tremendous potential to
decentralize and localize economic activity, but network effects (benefits of con-
sumption that increase with the number of users) as well as platform strategies
(creating standards that lock out competitors from an ecosystem that customers
buy into) have led to economic concentration, and much of the commercial
potential of the Internet is exploited by very few companies. In comparison with
the Internet, AM is developed by many different actors across the world, and indi-
vidual companies currently seem unable to exploit network effects and platform
strategies to create economies of scale in this area. For this reason, we are confi-
dent that AM will lead to decentralization and localization.
Author Biographies
Avner Ben-Ner is a Professor in the Center for Human Resources and Labor
Studies in the Carlson School of Management at the University of Minnesota. He
is also Affiliated Professor in the Law School, Affiliated Professor in the Center
for the Study of Political Psychology, and Member, Graduate Faculty in Applied
Economics, at the University of Minnesota (email: benne001@umn.edu).
Enno Siemsen is Executive Director of the Erdman Center for Operations and
Technology Management and the Procter & Gamble Bascom Professor at the
Wisconsin School of Business at the University of Wisconsin (email: esiemsen@
wisc.edu).
Notes
1. UPS Press Release 1463510444185-310, May 18, 2016.
2. Michelle Starr, “Dubai Unveils World’s First 3D-Printed Office Building,” CNET, May 25,
2016, http://www.cnet.com/news/dubai-unveils-worlds-first-3d-printed-office-building/.
3. A. Chandler, Scale and Scope: The Dynamics of Industrial Capitalism (Cambridge, MA: Harvard
University Press, 1990).
4. See, for example, E. Atzeni and A. Salmi, “Economics of AM for End-Usable Metal Parts,”
International Journal of Advanced Manufacturing Technology, 62/9 (October 2012): 1147-1155.
5. O. E. Williamson, The Mechanisms of Governance (New York, NY: Oxford University Press,
1996).
6. “The Third Industrial Revolution,” The Economist, April 21, 2012; B. Berman, “3-D Printing:
The New Industrial Revolution,” Business Horizons, 55/2 (March 2012): 155-162; I. J. Petrick
and T. W. Simpson, “Point of View: 3D Printing Disrupts Manufacturing: How Economies
of One Create New Rules of Competition,” Research-Technology Management, 56/6 (November
2013): 12-16; C. Anderson, Makers: The New Industrial Revolution (New York, NY: Crown
Business, 2014); R. D’Aveni, “The 3-D Printing Revolution,” Harvard Business Review, 93/5
(May 2015): 40-48.
7. C. Weller, R. Kleer, and F. T. Piller, “Economic Implications of 3D Printing: Market Structure
Models in Light of AM Revisited,” International Journal of Production Economics, 164 (March
2015): 1-43.
8. D’Aveni, op. cit.
9. See, for example, T. E. Burns and G. M. Stalker, “The Management of Innovation,” University
of Illinois at Urbana-Champaign’s Academy for Entrepreneurial Leadership Historical
Research Reference in Entrepreneurship, 1961; J. Woodward, Industrial Organization: Theory
and Practice (London, UK: Oxford University Press, 1965); Chandler, op. cit.; E. T. Penrose,
The Theory of the Growth of the Firm (New York, NY: Oxford University Press, 1995); D. J.
Teece, “Firm Organization, Industrial Structure, and Technological Innovation,” Journal of
Economic Behavior & Organization, 31/2 (November 1996): 193-224; D. S. Landes, The Unbound
Prometheus: Technological Change and Industrial Development in Western Europe from 1750 to the
Present (Cambridge, UK: Cambridge University Press, 2003); A. Ben-Ner and A. Urtasun,
“Computerization and Skill Bifurcation: the Role of Task Complexity in Creating Skill Gains
and Losses,” Industrial & Labor Relations Review, 66/1 (January 2013): 225-267; W. R. Scott
and G. F. Davis, Organizations and Organizing: Rational, Natural and Open Systems Perspectives
(New York, NY: Routledge, 2016), chapter 6.
10. See, for example, V. J. Petrovic, V. H. Gonzalez, O. Jordá Ferrando, J. Delgado Gordillo, J.
Ramón Blasco Puchades, and L. Portolés Griñan, “Additive Layered Manufacturing: Sectors
of Industrial Application Shown through Case Studies,” International Journal of Production
Research, 49/4 (2011): 1061-1079.
11. Weller et al., op. cit.
12. See, for example, reporting in TCT magazine http://www.tctmagazine.com/3d-printing-at-ces.
13. N. Hopkinson and P. M. Dickens, “Analysis of Rapid Manufacturing—Using Layer
Manufacturing Processes for Production,” Proceedings of the Institute of Mechanical Engineers,
Part C: Journal of Mechanical Engineering Science, 217/1 (2003): 31-39; M. Ruffo, C. Tuck, and
R. Hague, “Cost Estimations for Rapid Manufacturing—Laser Sintering Production for Low
to Medium Volumes,” Proceedings of the Institution of Mechanical Engineers, Part B: Journal of
Engineering Manufacture, 220/9 (2006): 1417-1427.
14. T. J. Holmes and J. J. Stevens, “An Alternative Theory of the Plant Size Distribution, with
Geography and Intra- and International Trade,” Journal of Political Economy, 122/2 (April
2014): 369-421.
15. M. Holweg, “The Limits of 3D Printing,” Harvard Business Review Digital Articles, June 23,
2015, https://hbr.org/2015/06/the-limits-of-3d-printing.
16. M. Baumers, P. Dickens, C. Tuck, and R. Hague, “The Cost of Additive Manufacturing:
Machine Productivity, Economies of Scale and Technology-Push,” Technological Forecasting &
Social Change, 102 (January 2016): 193-201.
17. A report by IBM makes the point regarding transportation as follows: “Container shipping
companies would likely benefit from 3D printing-driven supply chain changes that make it
more economical to position raw materials closer to the points of final consumption. Even
for raw materials that require processing before transport, container shipping lines might be
called upon to move great quantities of semi-processed raw materials, or even 3D print-ready
cartridges, in bulk between continents. Of course, these gains may be offset, in part or in full,
by decreased demand for companies to ship intermediate goods between locations before
final assembly,” IBM, “Shifting Transport Paradigms, Understanding the Implications of 3D
Printing on the Global Transportation Industry,” IBM Global Business Services Executive
Report, 2014, p. 10.
18. K. J. Arrow, The Limits of Organization (New York, NY: W.W. Norton, 1974); Williamson, op. cit.
19. A. Ben-Ner, J. M. Montias, and E. Neuberger, “Basic Issues in Organizations: A Comparative
Perspective,” Journal of Comparative Economics, 17/2 (June 1993): 207-242.
20. For a related analysis, see A. Ben-Ner, F. Kong, and S. Lluis, “Uncertainty, Task Environment
and Organization Design: An Empirical Investigation,” Journal of Economic Behavior &
Organization, 82/1 (April 2012): 281-313.
21. J. Levin and S. Tadelis, “Profit Sharing and the Role of Professional Partnerships,” The
Quarterly Journal of Economics, 120/1 (2005): 131-171.
22. http://enablingthefuture.org/tag/ivan-owen/.
23. For numerous up-to-date examples, see this newsletter: http://3dprintingindustry.com/
medical/.
24. https://3dprint.com/61632/lowes-in-store-3d-printing/.
25. Chanel’s suits were crafted in 3D using selective laser sintering. http://www.theglassmaga-
zine.com/fall-2015-haute-couture-chanel/.
26. http://danitpeleg.com/.
27. http://www.electroloom.com/.
28. D. R. Bell, S. Gallino, and A. Moreno, “Offline Showrooms and Customer Migration
in Omni-Channel Retail,” 2015, https://ssrn.com/abstract=2370535 or http://dx.doi.
org/10.2139/ssrn.2370535.
29. Local Motors started a partnership with GE called FirstBuild to design and produce a wide
range of home and industrial appliances in microfactories.
30. Private communication from the company.
31. Weller et al., op. cit.
32. J. Li, S. G. Ballmer, E. P. Gillis, S. Fujii, M. J. Schmidt, A. M. E. Palazzolo, J. W. Lehmann,
G. F. Morehouse, and M. D. Burke, “Synthesis of Many Different Types of Organic Small
Molecules Using One Automated Process,” Science, 347/6227 (March 2015): 1221-1226.
33. h t t p : / / w w w. f o r b e s . c o m / s i t e s / r o b e r t s z c z e r b a / 2 0 1 5 / 0 8 / 0 4 / f d a - a p p r o v e s - f i r s t -
3-d-printed-drug/#559b60802c8a.
34. Petrick and Simpson, op. cit.
35. D’Aveni, op. cit.
36. http://www.nano-di.com.
37. Holweg, op. cit.
38. Chandler, op. cit.
39. S. Zuboff. “Creating Value in the Age of Distributed Capitalism,” McKinsey Quarterly, 12/1
(2010): 1-12.
40. See, for example, M. A. Lemley, “IP in a World without Scarcity,” NYU Law Review, 90/2
(May 2015): 460-515; P. Berthon, L. Pitt, J. Kietzmann, and I. P. McCarthy, “CGIP: Managing
Consumer Generated Intellectual Property,” California Management Review, 57/4 (Summer
2015): 43-62; http://www.ip-watch.org/2015/07/09/3d-printing-and-public-policy/.

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THE ORGANIZATIONAL AND ECONOMIC

KEYWORDS: technological change, supply chain, organization structure, disruptive

1University of Minnesota, Minneapolis, MN, USA

revolutionary implications of AM. For instance, UPS is in the process of establish-

We studied the literature on AM technology in mechanical and industrial

Economies of Scale, Organization Costs, and Market Structure

Similarly, benefits of marketing and sales of products accrue to large com-

TABLE 1. Comparison between Traditional and Additive Manufacturing on Various

Traditional Manufacturing Additive Manufacturing

Design requirement Strict design-for-manufacturability Reduced design-for-manufacturability

Transportation Leveraging economies of scale requires Localized production means less

AM in Action: Medical Devices and Spare Parts Inventory

finger prosthetics, and eventually a whole hand, using a simple 3D printer. He

Examples of Future Disruptions: Apparel and Car

The various costs of carrying an inventory of finished goods in such a model

Industries Not Disrupted

A Time Frame for Disruption

Our prediction is that with widespread adoption of 3D printing in the

Implications for Management Theory and Practice

Discussion and Conclusions

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