Distributed 3D Printing of Spare Parts via IP Licensing

Additive manufacturing, also known as 3D printing, has the potential to shift supply chains from global networks that rely on centralized production with traditional manufacturing technologies to mainly digital networks with distributed, local 3D printing. Particularly well positioned to drive this transition are original equipment manufacturers (OEMs) who design and produce capital goods. We consider an OEM supplying a single part to multiple buyers over an infinite horizon. We study how the OEM can digitize the spare parts supply chain by leveraging 3D printing via intellectual property (IP) licensing. We first set up a benchmark model of the traditional physical supply chain with centralized production by the OEM. We then propose the OEM to act as an IP licensor by selling spare parts designs, rather than physical parts. With the license agreement, a buyer can print spare parts locally through a third-party printing service provider, enjoying a much shorter lead time and lower setup cost. Given a license, each buyer chooses whether to switch to the IP licensing channel or stay in the traditional channel. The OEM selects the license terms to maximize his total profit across both channels. We characterize the OEM's optimal license and the resulting supply chain configuration. We show that 3D printing's competency in price plays a dominant role in decentralization. Through a numerical experiment with realistic parameter settings, we demonstrate that decentralized supply chain occurs in a surprisingly large number of cases. The proposed new business model can also significantly increase the OEM's profit. Our results indicate that IP licensing by OEMs can become a major enabler in the transition to digital supply networks with distributed 3D printing, benefiting all parties involved.