Retailing with 3D Printing

Abstract

Given the promise of three‐dimensional (3D) printing, also known as additive manufacturing, some innovative consumer goods companies have started to experiment with such a technology for on‐demand production. In this study, we consider two adoption cases of 3D printing in a dual‐channel (i.e., online and in‐store) retail setting, and evaluate its impact on a firm’s product offering, pricing, and inventory decisions. Our analysis uncovers the following effects of 3D printing. First, 3D printing at the factory has the substitution effect of technological innovation for online demands, as 3D printing replaces the traditional mode of production. Such technology substitution not only leads to increased product variety offered online, which allows the firm to charge a price premium for online customers, but also induces the firm to offer a smaller product variety and a reduced price in‐store. There is an additional environmental benefit when more customers are steered from the in‐store channel to the online channel. Second, when 3D printing is used in‐store as well, in addition to the substitution effect, the firm also achieves a structural effect due to the fundamental change in the supply chain structure. Since the in‐store demand is served in a build‐to‐order fashion, the firm achieves postponement benefits in inventory management. The environmental benefit is the most significant in this case. Moreover, using 3D printing in‐store will require a new supplier–retailer relationship. We find that cost‐sharing contracts can coordinate the supply chains where 3D printing is used in‐store and the supplier controls the raw material inventory.