How to calculate the costs of additive manufacturing?
Whether contemplating a 3D printer purchase or outsourcing part production, astute managers know they must objectively assess their options. Yet, they lack the tools necessary to produce an accurate ROI analysis, especially when they have limited or no experience with 3D printing. Even the actual cost of their current, conventionally manufactured parts made with casting, forming, molding, subtractive, or assembly techniques are often shrouded in mystery, with internal chargebacks based on incomplete or inaccurate production costs and overhead calculations.
To solve the ROI problem, purchasing personnel solicit pricing from a 3D print service provider and a traditional manufacturing outsourcer, the idea being that the two prices reflect market realities. Worst case, the thinking goes, is that both suppliers' prices will be higher than the internal costs because of the suppliers' profit margins. But purchasing's focus on external pricing masks hidden internal costs such as warehousing, spoilage, ordering costs, handling labor, logistics, the value of capital tied up in inventory, and more. For example, 3D printing can avoid supply chain disruption costs like emergency freight and lost revenue. These hidden costs can be particularly significant for spare parts.
To uncover those hidden costs and calculate the real cost of additive and conventionally manufactured items per unit, purchasing personnel should use a calculation that varies by the quantity ordered and applies to their unique circumstances. Only then, after having determined which 3D printing vendor's solution meets your quality and performance requirements, can you compare the proposed and existing production methods.
The 3D Printing Cost Curve illustrates this point. Conventional manufacturing has high set-up and make-ready costs. Think about the lead-time and costs associated with injection mold tooling. The high tooling cost (but not the long lead-time or delayed revenue, which are significant factors) is amortized over high volumes of identical parts. The more parts produced, the lower the upfront cost as a proportion of the total cost per piece. The cost of conventional manufacturing steadily declines as more parts are made.
On the other hand, 3D printers have a lower initial cost for set-up and make-ready, with no tooling investment and faster time-to-revenue. So, while there is some initial burden on the 3DP cost, it is amortized quickly and leads to an almost horizontal cost curve. Don't forget that most 3D printed parts require post-processing to remove supports and excess material, polishing, or post-print cooling time that may be more than needed for the conventionally manufacturing equivalent and must be factored into the ROI calculation. Different 3D Printing technologies differ in levels of complexity of post-processing required (e.g., certain technologies like Xerox's liquid metal printer removes the powder removal step making post-processing faster).
The intersection of the two curves results in a break-even point. The lower quantities to the left of the break-even point should be produced with 3D printing, while the higher amounts to the right should be made with conventional manufacturing:
