Utilizing Additive Manufacturing and Mass Customization under Capacity Constraints

Abstract

Additive manufacturing (AM), originally used for prototyping, is increasingly adopted for custom final part production across different industries. This usage brings new manufacturing opportunities for mass customization (MC). However, printing speed and production volume are two barriers to AM adoption for product customization on a large scale. But what if manufacturers could combine the benefits of AM for product customization with traditional MC technologies over the product life cycle (PLC)? We address this opportunity through a mathematical model that considers a monopolist manufacturer producing horizontally differentiated products at scale. To satisfy individual customer preferences, under PLC and capacity considerations, the firm jointly optimizes the following decisions: inventory, production quantity, product variety, optimal technology-switching times (between AM and MC), and pricing policy. Our approach can be implemented by decision-makers to leverage customer-centricity and benefit from this novel hybrid manufacturing practice. We derive a closed-form solution for the production quantity decision based on an adaptive inventory policy. We solve the resulting non-convex optimization problem using the Sample Average Approximation framework grounded by analytical results. Our results demonstrate that the new usage of AM with MC can benefit a manufacturer for customer-centric driven strategies. Significant profit improvements can be achieved with an AM-MC-AM technology-switching scenario, under certain capacity conditions, and with an increasing-decreasing pricing policy. Our results also indicate that the benefits of pricing flexibility are highest when capacity is unlimited, or when the firm does not hold inventory. Under capacity constraints, a simple decreasing pricing policy combined with inventory performs very well.