3D printing will transform supply chains.
Two factors limit the degree to which manufacturing firms can outsource parts of their production process. One is the cost of moving the parts from outsourced production to assembly and the other is complexity. This post deals with the first.
The first iteration of outsourcing involved specifying to the sub-contractor all the details of the unit they were to build. The sub-contractor made the part and shipped it to the firm who'd ordered it. The second iteration pushed some of the design work onto the sub-contractor. The outsourcing firm specified the properties and interface requirements, but the details of how this was to be achieved is left to the sub-contractor who designs and builds the part and then ships it back. In both cases the economic viability depends in part on the cost of shipping the manufactured part. Shipping is a transaction cost and in the TCE framework the higher the transaction cost, the less likley it is that firms will outsource that activity.
3D printing changes that component of the transaction costs dramatically. Instead of shipping back a part, the subcontractor ships back a series of bits that control the outsourcing firm's 3D printer. The cost of sending bits is negligible compared to the cost of shipping parts and so a TCE based prediction is that 3D printing will greatly increase out-sourcing and reduce vertical integration. We will have gone from chains full of physical items linking buyers and suppliers to a web of fibers filled with bits and bytes.
