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February 08, 2008

Future Fab@home local production is not assured victory over centralized production

Jamais Cascio, founder of Open the Future and a director at CRN, says nanofactories will have a huge impact: "If it becomes cheaper and more efficient to have something printed out locally instead of made in China, it will have a big effect on things like trade balances, international labor, and ... our national economy."

I think with improved technology that centralized production will not go away.

Technological impact starts occuring before nanofactories arrive with advances on the current generation of 3d printers, fabbers and rapid manufacturing systems. Also, the technology impact is not exclusively in favor of local manufacturing versus China production. Transportation costs to ship 140 million 100 gram UAVs do not put centralized production at much of a disadvantage relative to local fabrication. So do transportation costs outweigh economies of scale ? Big photocopying jobs still go to Kinkos and bigger printing runs of marketing materials still get outsourced to China. I see the relationship with local printable electronics and fabbers to be the same.


Adaptable but relatively large reel to reel printable electronic production could be part of the warehouse area of a Walmart or Costco. Just like they photograph printing at Walmart and Costco and Kinkos now.

Monster high volume production would still make sense to be placed in China.

It is not just that you can have bigger machines with higher economies of scale, the economies of scale also have to do with having the customers to keep the machines busy and running all the time. There are economies of constant operation and amortization and economies of specialization. The manufacturing specialist will be better at it because that is what they do all the time.

I do not think the business factors change that much even with nanofactories (at least not beyond the current products like printing). I think the big nanofactory will still be more efficient and lower cost than the desktop nanofactory.

Economies of scale

The common ones are purchasing (bulk buying of materials through long-term contracts), managerial (increasing the specialization of managers), financial (obtaining lower-interest charges when borrowing from banks and having access to a greater range of financial instruments), and marketing (spreading the cost of advertising over a greater range of output in media markets). Each of these factors reduces the long run average costs (LRAC) of production by shifting the short-run average total cost (SRATC) curve down and to the right.



There are Diseconomies of scale as well.

Causes
1. Cost of communication
2. Duplication of effort
3. Top-heavy companies
4. "Office politics"
5. Isolation of decision makers from results of their decisions
6. Slow response time
7. Inertia (unwillingness to change)
8. Cannibalization
9. Large market share / portfolio
10. Public and government opposition
11. Other effects related to size


FURTHER READING
Prodution costs and pricing

This discusses the advantages and disadvantages of mass production, jobbing and batch production.

1 comments:

Al Fin said...

I suspect that both arguments have significant weaknesses.

One should not equate future centralised production with "made in China." Extrapolation of present trends into the future does not work out well in the long run.

Rapid production de-centralised fabs will not come to homes for a long time. They will be affordable to large central corps and de-centralised franchises and startups long before becoming affordable to individuals.

Rather than arguing the extremes, it is better to look at intermediate and mixed trends.