How affordable CNC can re-make industry: thoughts on technology and business structure

How does technology influence the size and shape of business?  What’s the most effective kind of organization to house low-cost CNC tools?  What are the opportunities ahead?

The rapid decline in the cost of capital equipment such as CNC tools, along with the capacity to share or sell designs around the world, suggest that there are possibilities for entirely new formats for doing business.  In this article, I consider some alternative forms and invite a dialogue with the makers on 100kGarages about what is possible, and what is desirable.

A brief history of the American corporation

First, some history.  We tend to think of the public corporation, with shares traded on stock markets, as the standard and even inevitable way of organizing business.  But in historical terms, it is clear that the “major corporation” is only one way of doing business, and it is not eternal.

The first Dow Jones index in 1885 consisted of 11 railroads, one steamship operator, one canal, and Western Union.  At the time, the US had fewer than a dozen manufacturers listed on stock markets, because few of them were big enough to justify going public.  Most were family businesses or private partnerships.  As the US headed into the new century, railroads were creating economies of scale in distribution and new technologies were creating economies of scale in production.  Bigger was now more economical, which created demands for capital on a large scale.

By 1914 the US was well on its way to being a corporate economy.  Many of the largest manufacturers and retailers had gone public, often following mergers among regional companies.  Economies of scale and the creation of the mass production assembly line meant that the bigger the production facility, the lower the per-unit cost.  The high water mark of the mass production model was Ford’s River Rouge Plant, which employed 75,000 people when it was completed in 1927 and grew from there.  The Rouge was the most vertically-integrated factory the world had ever seen, turning raw materials like iron, sand, steel, rubber, and coal into Model As.

Not every economy followed American-style mass production.  In places like Italy, industrial districts persisted; in others such as Germany, industry was divided into different sectors, with family-owned businesses prevailing in much of manufacturing.  But in the US, the vertically-integrated corporate model dominated.

The corporation changes shape

Efficiencies in shipping and advances in information and communication technologies (ICTs) over the past two generations have substantially re-formatted the corporation.  We have moved from the vertically integrated world of the Rouge Plant to the vertically dis-integrated world of Alibaba.com.

First, low-cost containerized shipping enabled the separation of design and production into different organizations.  Call it the Nike model.  Nike does the design and marketing of its sneakers and sporting goods in Oregon but contracts out for production and distribution, primarily using high-volume producers in East Asia.  This model has spread to nearly every consumer industry.  It is often difficult to find a branded product in the US that was produced by the company whose name is on the label.  In some cases nearly every brand in an industry (e.g., pet food) is actually produced by the same anonymous manufacturer, but sold under different brand names.  As the factory collapse in Bangladesh revealed, sellers in industries like clothing often have little idea where their goods were produced.

Second, ICTs, and in particular the Web, have further dispersed supply chains into sectors of essentially generic manufacturing.  In electronics, for instance, Apple famously relies on Foxconn in China to assemble its phones and computers, as do many other brands, while the majority of Apple’s modest US workforce is employed in its retail stores.

As a result of the growth of large-scale generic manufacturing, even small entrants can now “rent” production capability around the world and scale up rapidly without building their own facilities.  Call it the Vizio model.  Vizio, headquartered in Irvine, California, grew to become the largest brand of flat-screen television in the US in 2010, beating Sony and Samsung, with fewer than 200 employees.  By contracting out production and relying on commodity parts, Vizio could undercut the big brands on price.

In the case of both Nike and Vizio, efficiencies in mass production, typically in East Asia, made the model work, and eventually forced many or most other participants in the industry to follow suit.  There were holdouts, like Dell Computer.  Dell continued to assemble PCs in the US through the 1990s and 2000s and maintained its American assembly operations even as the rest of its industry abandoned domestic production.  Unfortunately for Dell, the viability of its model of “mass customization” going forward is uncertain, as inexpensive mass-produced tablet computers replace desktop PCs.  Dell’s proposal to go private could be seen as a concession that being a public corporation may no longer fit the requirements of the industry.

It is not just Dell whose the corporate approach no longer fits.  When Michael Dell had the dormroom insight three decades ago that he could assemble PCs for less than the name brands using off-the-shelf parts, he set about building a company with employees and factories, and pioneered new sales channels (first by phone, then over the Web).  Today’s entrepreneur would instead connect to Alibaba.com and find a suitable producer, and get Shipwire.com to pick up the products at the dock and distribute them.  Anyone with a credit card and a Web connection can create an enterprise today without ever leaving the dorm.

One of the results of this shift toward “pop-up business” is that the corporation itself may no longer be viable in the long term, at least in some industries.  Sony has a lot more overhead than Vizio, which is one reason why its electronics business is a perennial money-loser.  The number of companies listed on stock markets in the US has dropped by more than half since 1997, from 8800 to 4100.  Every year but one since then, the number of companies disappearing from the market has greatly outnumbered initial public offerings (IPOs), and the companies going public rarely grow into major players.  It is safe to say that Vizio or Zynga are unlikely to replace Eastman Kodak and Westinghouse as century-spanning pillars of the American economy.  Moreover, even the major players are often substantially leaner: GM has the same number of employees today that it had in 1928, which is roughly one-quarter of its size 30 years ago.  The age of the “major corporation” may be over.

What comes next?

The right organization for CNC

Low-cost CNC and related technologies such as 3D printing can have a transformational effect on how we organize business in the US.  Chris Anderson’s intriguing book Makers explores some of these themes and proposes that we are on the verge of an organizational revolution along the lines of what happened when the Internet hit.  In the foreseeable future, the per-unit cost to create bookshelves on a ShopBot will be comparable to the cost of buying them at Ikea, with the bonus of customizability.  (How about bookshelves made from scavenged bowling alley wood?  Or that old cherry tree that got struck by lightning?)

In fact, Ikea does not sell furniture to its customers today, but ingredients and recipes for assembling them.  Ikea is in the design business, just like Nike and Apple (and Vizio). A ShopBot could in principle create much of the Ikea catalog, and it’s plausible to imagine that at some point Ikea or a competitor will simply sell the designs in a ShopBot-friendly format, along with a parts list and an assembly guide.  AtFab already provides beautiful downloadable designs that are in the forefront of this alternative approach.

It is not just routers, of course: CNC tools and 3D printers get better and cheaper at a dramatic rate, just as computers and laser printers did, with highly disruptive effects on industries such as publishing, music, and broadcasting.  3D-printed sneakers may be just around the corner, followed by printed phones.

What are the organizational implications of this coming disruption?  What is the right model to house this technology?

One possibility is a return to the putting-out system, which preceded the factory.  Perhaps independent contractors, each owning one or two tools in garage workshop, could do components of the job, passing work in progress to the next contractor.  Blade Runner, anyone?

Alternatively, Amazon.com could build “universal fab facilities” in which products that are ordered online are created and distributed from more-or-less central hubs that replace its current system of warehouses.  On-demand production and delivery would lead to a world without (much) inventory, and create another value-added service for Amazon—while turning “manufacturing” into “design” even more fully than Nike has.

Or perhaps every town could have a central workshop, paid for by membership (like TechShop) or by a municipal government.  Farmer co-ops in the US had a similar format.  Farmers would band together to fund jointly-owned machinery, grain mills, milk processing facilities, or other high-cost inputs, and their efforts often extended to other areas (such as mutual insurance companies).  These co-ops had the added benefit of allowing groups of farmers to bargain for more favorable rates from railroads and wholesale buyers.  TechShop has midwifed successful several businesses that moved on to operate independently, but perhaps it could serve as a mothership for small-scale producers.

How do we get there?

In the absence of an organized movement, the most likely outcome is the Amazon outcome.  (Or perhaps an Amazon/Walmart duopoly.)  What are alternative possibilities?

One model already underway is a grassroots federation like 100kGarages, comprised of independent business-people.  Think of this as the federation model.  This allows the maximum level of individual autonomy.

Another possibility is to follow the precedent of farmers’ co-ops, collaborating at a local level to outfit a general fab shop with shared ownership.  Think of this as the co-op model.  This is compatible with a revival of the co-op movement happening in urban areas around the US, such as Cleveland’s Evergreen Cooperatives.  The co-op model buffers some of the individual risks associated with being an independent business owner.

Either of these forms could eventually provide a platform for creating services for producers that are often beyond the means of small local businesses (e.g., establishing 401(k) plans, health insurance, a local credit union).  There is a long tradition of ecosystems such as these in American history, as shown by sociologist Marc Schneiberg.

There are also models of transition for existing businesses. Ace Hardware, a quintessential American business, became a cooperative in 1973 when its founder retired and sold the company to its local retailers.  In the ideal case, this allows both local autonomy and the economies of scale of large size.

History shows that the same technology is usually compatible with many alternative ways to organize business.  The Internet can be used to expand democracy at the grassroots level, or to radically increase intrusive monitoring by governments and companies.

What are your thoughts?  What are the opportunities created by CNC technology?  What are the tradeoffs of different ways to organize?

This entry was posted in collaboration, distributed manufacturing, Maker Movement, shopbot, The New Industrial Revolution and tagged , , , on by .
Jerry Davis

About Jerry Davis

Jerry Davis is the Wilbur K. Pierpont Professor of Management at the Ross School of Business and Professor of Sociology, The University of Michigan. Davis received his PhD from the Graduate School of Business at Stanford and previously taught at Northwestern and Columbia. Recent books include Social Movements and Organization Theory; Organizations and Organizing; and Managed By the Markets: How Finance Reshaped America. He is currently Editor-in-Chief of Administrative Science Quarterly and Co-Director of the Interdisciplinary Committee on Organization Studies (ICOS) at Michigan. His upcoming books in progress include Grassroots Social Innovation (forthcoming, Harvard Business Review Press), a guide for “social intrapreneurs” who want to use their company’s resources to create positive social impact, and Life After the Corporation, which documents the ongoing collapse of the public corporation in the US and the proliferation of alternative ways of doing business enabled by new technologies.

5 thoughts on “How affordable CNC can re-make industry: thoughts on technology and business structure

  1. Jim Erwin

    An interesting bit of trivia. One of the finalists on the recent season of Project Runway created his own jewelry and fashion accessories (for the finale) using a 3D printer. The process wasn’t snap your fingers and viola, beautiful designer neckpiece. The printer took about 55 hours for each of the larger pieces.

    However, setting aside the context of nubile fashion models wearing 21st century artwork on a tv reality game show, there’s a message here that needs to be heard. A new technological revolution has begun in the world of manufacturing. The free market is a force of nature, and this change is coming whether or not businesses prepare for it. Evolution will dictate who survives and who goes extinct.

    We’re no longer talking about “if” localized just-in-time production of parts and goods is going to happen. Businesses need to realize that we’re now talking about “when”. Businesses who fail to prepare for this change are in danger of becoming like IBM in the 1980s, who nearly went extinct because of failing to acknowledge the home PC revolution.

    30 years ago, a computer system with a monochrome green screen, dot matrix printer, 20 mb hard drive, and a 300 baud dial up modem, would cost well over $5,000. Today, for about 1/10th of that price, a consumer can get laptop system capable of streaming real-time video and generating photo quality prints. This technology has virtually put Kodak out of business.

    A similar revolution is on the horizon for 3D printers and industrial manufacturing. The days of warehousing spare parts are coming to an end. We’re looking at era of design and development that will look more like YouTube than like traditional factories. And it’s not a question of if this is going to happen. It’s a question of how rapidly the technology progresses.

    Reply
  2. Kate

    Jerry, as a digital fabricator often faced with explaining what exactly we do, I find myself in this conversation frequently. My favorite model to use in conversation is FedEx/Kinkos. People understand having/creating a file and getting it printed at the local copy shop.

    However, I’d love to see this shared community capability grow as a new role for the local library. Already a community space, the library could provide access to the learning/skill building side of digital fabrication, the reference of a design catalog, and the access to CNC tools.

    Thanks, Kate

    Reply
  3. Jerry DavisJerry Davis Post author

    @Kate: great suggestion! Libraries have all of the features we might want to see in a community resource for fabbing and experimentation. As digital resources increasingly replace printed books as the library’s stock in trade, it is easy to imagine space opening up for tools. I imagine it makes more sense to convert an existing branch rather than turning a floor of an existing library over to a bunch of Tormachs and ShopBots (which are not yet silent, as a library might want…)
    This is already happening on a modest scale at my local library in Detroit, where Jeff Sturges and colleagues have set up a teen-oriented makerspece: http://www.detroitpubliclibrary.org/hype/hype-makerspace (mostly quiet stuff like Arduino and bikes).
    And there is a nice post about the general topic here: http://www.detroitpubliclibrary.org/hype/hype-makerspace

    Any thoughts on how this might be a viable economic resource? That is, in addition to building skills, could it be a micro-production facility (e.g., for Etsy types)?

    Reply
    1. Howard Aldrich

      Jerry Davis’s insightful & provocative essay raises important questions about the future of new technologies, such as CNC machines, 3D printers, laser cutters, and other tools putting digital and distributed manufacturing within reach of ordinary people and small firms. Where is the best place to locate these new technologies? Who will have access to them? On what basis will access be granted? What funding models can we use? What kinds of governance structures will ensure that the best use is made of the public monies invested in the spaces?

      The United States has seen a long-term trend away from low skilled and labor-intensive manufacturing jobs into more advanced, skills-based manufacturing. North Carolina is an excellent case study in this regard. In the late 20th century, about half of the state’s manufacturing jobs were in furniture, textiles, and tobacco. Today, the majority are in more technology-intensive industries, such as pharmaceuticals and electronics. Employers complain that they can’t find enough skilled workers to take up all the jobs available. Where can people learn new skills called for in these expanding industries? In North Carolina, a group of community colleges has formed the North Carolina Advanced Manufacturing Alliance and obtained a grant from the Department of Labor to create a new curriculum for students interested in learning new skills. The community colleges are offering courses in advanced manufacturing technology, robotics, CAD/CAM, and so forth.

      Community colleges would seem to be a natural home for maker spaces, equipped with state-of-the-art new technologies so that instructors can give students hands-on experiences. However, because community colleges are funded by the state, one could also argue that people in local are served by community colleges as should also have access to these spaces. Why should they only be used by people doing class projects? Maker spaces in Detroit, Philadelphia, Phoenix, and other cities have opened their doors to hackers, hobbies, tinkerers, and others wishing to take advantage of equipment and training they cannot afford on their own.

      A potential stumbling block in broadening access to the new technologies through these community centers concerns funding the initial setup and then the recurring operating costs. Private maker spaces, such as Tech Shop, charge monthly fees. Some community centers have a tiered pricing model, charging people by how frequently they use the space, and also charging for materials. From a public policy point of view, low-income people and students could be subsidized, through higher fees charged to some members or via city, county, or state government support.

      We cannot depend solely upon private financial incentives to create the kind of inclusive access envisioned here. Broadening access in this inclusive way will require tapping into the strong collaborative ideology underlying the maker movement. Jerry mentions the precedent of farmers’ cooperatives, which were formed by farmers collaborating at a local level to build grain elevators, marketing cooperatives, and other infrastructural improvements with shared ownership. He suggested this model could be followed by maker spaces.

      Currently, much of the training and mentoring that goes on in maker spaces is done by volunteers, with more knowledgeable people helping novices and amateurs. They do that because they believe in the cause, and that is a very important resource that should not be overlooked. Nonprofit maker spaces not affiliated with community colleges can benefit by emphasizing the purposive and non-material incentives that are fundamental to the maker movement.

      Reply
  4. Ted HallTed Hall

    Feasibility of a “new industrial revolution” based on the evolution of digital fabrication

    Digital fabrication is a creative continuum – covering concept, method, process, software, and hardware — a technology for making things based on digitally represented designs expressed in high fidelity by digitally controlled equipment. Conceptually, digital fab is about the relationship between symbolic “bits” and the arrangements of “atoms” creating structures. And someday, digital fab will get us to the popularized but highly imagined future where everything is replicated from sacks of gray nano-goo. But today, digital fab is about robots and robotics – robots that build and assemble using additive robotic squirting and depositing and subtractive robotic cutting, drilling, machining, and carving.

    The evolution of digital tools in the last 20 years has been dramatic. Initially exclusively employed in large industry, the tools were large brutes, difficult to use, inflexible and so expensive that they required extensive capitalization that only made sense for the large vertical manufacturing corporations that Jerry describes. Even then they were useful only for the rote automation of mass production in centralized facilities. But now, the evolved versions of these machines are increasingly available in sizes appropriate for small workshops. At the same time, programming and computational advances have given them an incredible flexibility. They are now right for prototyping, for making customized products, for doing short production runs, as well as for high volume production. The increasing accessibility and affordability of the new tools of digital fabrication has been so impressive that it has been described by many as a “democratization” of production. Small local workshops can now have digital fab equipment that achieves manufactured quality once attainable only by a large factory with specialized operators.

    As Jerry indicates, there are a number of prospects for how we will make use of the new tools of digital fabrication. But it is worth emphasizing the manner in which the emergent characteristics and capabilities of the technologies qualitatively alter the pattern of competitiveness for those production models. Specifically, we are entering an era in which small manufacturing operations – Jerry’s “putting out” systems and co-ops — can become highly competitive and viable as alternatives to centralized manufacturing because of the nature of the technologies. Specifically, 3 technology-derived, qualitative enhancements give new competitive advantages to small-shop, manufacturing business:

    1. Now competitive because of quality. Digital fab equipment provides the ability to produce precision, high quality parts with operations that are small in scale. It is hard to over-emphasize the degree of empowerment offered by the tools. Digital fab supports high levels of embedded complexity that allows more engineering to be built into parts. The cost of expressing complexity in additive or subtractive digital fab is relatively low because complex actions are just about as efficient for robotic equipment as simple motions. This is true for additive fab such as 3D printing, as well as subtractive technologies like CNC and laser cutting which, at the moment, offer more realistic manufacturing capabilities.


    2. Now competitive because of cost – low capitalization, low overhead.
    Because the tools are affordable, the capital requirements for digital fab operations are low and investment repayment burden minimal. Overhead can also be low because digital fab fits into life-style based operations for entrepreneurs who may share structure and infrastructure with their personal housing. Developments in software are making the process of digital design and digital control of equipment easier and more coherent. It reduces the need for specialized teams of engineers and operators. The combination of more embedded engineering along with ease of use of the equipment improves manufacturing work flow.

    3. Now competitive because of agility. Small fabrication operations have a flexibility and responsiveness that arises from their ability to quickly reconfigure and react to customer needs and requests. Internet connectivity gives small production operations reach, openness, and an accessibility that allows integration into a wide range of supply chains. Indeed, the continuum of digital fabrication is anchored on one end by the digital designs that are readily communicated, shared, and open for collaboration; and on the other end by a straightforward logistics flow for finished work based on digital networking and interconnection with other operations. As fabrication can occur in smaller, more flexible production shops, near where components are needed, enhancements occur in production efficiency and more rational utilization of energy and transportation resources.

    As Jerry had described, there are scenarios by which evolving digital production technologies are simply absorbed into variations of existing centralized production or mass customization operations. Even given new ways to be competitive, we may have no reason to be sanguine about the attractive, small-scale alternatives — other than that they have the added impetus of the energy of entrepreneurism. The enthusiasm of individuals attracted to building things — making and producing — may leverage the competitive advantages of digital fabrication and significantly drive the creation of new small enterprises. Entrepreneurial drive plus competitiveness can create a new day for cottage industries.

    I would just caution that the elephant in the room here is the same for all of manufacturing; digital technologies are going to continue to increase productivity and reduce the need for manufacturing labor. This means less need for workers in manufacturing and less manufacturing employment. New fabrication technologies do not offer a solution to the problem of employment. However, depending on how manufacturing evolves, what the new digital fabrication technologies do offer are opportunities for manufacturing-oriented individuals to participate in a type of production that offers potentially fulfilling options for work and life. Manufacturing entrepreneurs can participate in the production of consumer goods or in specialized, advanced-tech supply chains – the technology empowers both. They can establish small but competitive businesses that create additional attractive local jobs. Not for everyone, but it can work for those embracing the business challenges. It can work for those employed in the operations – with the small scale typically making for interesting, varied work that will provide for continual job-based learning as technologies evolve and new methods are mastered. Integrated by internet, these businesses can participate in long-tail, supply-chain solutions. They can also provide locale-oriented production closer to where products or components are needed so the energy burden of transportation is reduced.

    So, it may not be clear what sort of new manufacturing arrangements digital fabrication technologies will lead us to. But, for the new manufacturing entrepreneurs, digital fab offers alternatives for new, distributed-manufacturing options for making stuff the world needs while developing interesting work fulfilling lifestyles for themselves and their employees.

    Ted Hall, ShopBot Tools & 100kGarages.com

    Reply

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