Personal Fabrication as an Operational Strategy: Value of Delegating Production to Customer

Abstract

Problem definition: There is a growing interest in the industry around 3D printing. A related phenomenon is personal fabrication (PF) in which a firm sells products' design and lets the customers personalize and manufacture the product using 3D printing services. In this paper, we characterize the market and operational conditions that make PF an attractive operational strategy. Methodology/results: We propose a cylindrical market model capturing customer heterogeneity in taste (horizontal) and quality (vertical) dimensions while allowing the market to be skewed with high vs low valuation customers. We identify three key ways PF strategy can be beneficial and characterize their respective market and operational conditions. Firstly, the PF strategy can improve firm profitability through personalization. Personalization benefits the firm the most when the market is vertically concentrated but horizontally dispersed. Secondly, the PF strategy can help the firm through postponement of product positioning. Thirdly, the PF strategy enables easier design adjustments and the firm can invest in Design for Manufacturability (DFM) to improve customers' cost-to-quality trade-off. Then, we show that the feasibility of partial PF strategy --delegating only a proportion of the product for customer production-- critically depends on the cost evolution of 3D printing. Firms need to wait for technological maturity and cost competitiveness for benefiting from a smaller delegation. PF strategy can also be used for market entry. Under high cost disadvantage levels, the entrant will focus exclusively on the high-end market. When the cost disadvantage reduces, the entrant will compete for the whole market. Managerial Implications: Our results characterize the attractiveness of PF strategy based on the nature of personalization, market composition, demand uncertainty, and IP/liability restrictions of the product.