Supply Chain Coordination via Additive Manufacturing

Abstract

The impact of 3D printing, or additive manufacturing, on a supply chain, consisting of a manufacturer and retailer, that utilizes a wholesale-price contract and serves stochastic customer demand has been studied in this paper. 3D printing is an evolutionary manufacturing technology which is attracting many firms and governments. Its impact, however, on supply chains remains unexplored. A 3D printer can be purchased by either the manufacturer or, in a more novel situation, the retailer; we derive the equilibrium of Stackelberg games in both cases. We characterize the economic conditions where either firm adopts 3D printing; under a uniform distribution of demand, these conditions simplify to upper bounds on the acquisition cost of a 3D printer. If the firms do not naturally adopt 3D printing, we derive the minimum government subsidy that will induce each firm to adopt, and we find that the retailer subsidy is always at most the manufacturer subsidy. If the manufacturer adopts 3D printing, both firms benefit, with respect to a supply chain without 3D printing; however, the double marginalization effect is still present. If the retailer adopts 3D printing, the manufacturer benefits, but the retailer does not; however, the double marginalization effect is eliminated, and we discover that retailer 3D printing is a new mechanism for coordinating a supply chain. Thus, supply chain managers should carefully consider the possibility of a retailer manufacturing products via 3D printing.