3D Printing of Spare Parts Via IP License Contracts

Abstract

Additive manufacturing (AM), also known as 3D printing, has the potential to shift supply chains from global networks that rely on centralized production with traditional manufacturing technologies to largely digital networks with decentralized, local 3D printing, i.e., digital inventory. One type of firm that is particularly well positioned to drive this transition are original equipment manufacturers (OEMs), who design and produce capital goods. In this paper we propose that the OEM acts as an intellectual property (IP) licensor by selling spare parts designs, rather than physical spare parts. With these designs a buyer can print spare parts locally at much shorter lead times and at lower setup costs. We consider both an OEM who serves multiple identical buyers, and an OEM who serves two non-identical buyers. For both cases we characterize the optimal IP license contract. This determines which customers opt for the IP license channel and which remain in the traditional centralized sales channel, thus creating insights into the degree to which a supply chain decentralizes. We numerically show this to occur in a surprisingly large number of cases and we observe significant profit increases for OEMs who adopt this new business model. Our results thus show that IP licensing by OEMs can become a major enabler in the transition to digital networks with decentralized 3D printing.