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Nothing exemplifies the exceptional power and scale of today’s highest performing supply chains than the simple phrase: designed in California, assembled In China. Behind that elegant phrase are some of the world’s most sophisticated supply-chain processes, stitching together networks of suppliers, sub-assemblers and logistics companies around the globe.

Supply chains today are big, complex and global. Keeping them humming is an enormous challenge. But does it have to be that way? We think the world is entering the era of small, simple and local supply chains, powered by a new generation of manufacturing technologies such as 3D printing, intelligent assembly robotics and open-source hardware – also known as the Software Defined Supply Chain.

Simplification of chain lowers costs

It is evident that, over the next five years, most major consumer products will be cheaper and simpler to make using a software-defined supply chain than a traditional manufacturing process. In fact, on average, this new approach will result in products that are 23 percent lower in cost to make. Cheaper, however, is hardly new. What is new is the re-localization of the global supply chain and the radical simplification that is coming.

With low-cost robotic assembly and 3D printing, it is possible not only to make nearly any solid component, but it is also increasingly efficient to assemble whole products from those components using cheap, flexible robots. The result will be supply chains that are much, much simpler. A new global IBM Electronics report indicates that the minimum scale required to operate and be cost competitive has declined by an average of 90 percent in a software-defined supply chain environment, with profound consequences for industry structure and competition.

The 3D printing revolution is not a decade or more away – it’s going to start showing up in mass production within the next five years. Despite skepticism, research demonstrates 3D manufacturing improvements combined with the expiration of key patents will lead to a 79 percent reduction in average cost to print objects in five years, and a total of nearly 90 percent over the next 10 years.

Intermediaries cut from chain

One of the most likely effects from this is that many of the intermediaries that we depend on today for efficiency may no longer be necessary. For instance, mold and casting producers and specialized parts makers may be removed and replaced with a 3D printer; so, too, can many sub-assembly providers whose chief value proposition was labor cost arbitrage or to move the cost of capital equipment off the balance sheet.

Faster, customized products

Within the electronics industry, using open-source designs as a foundation on which to build, and leveraging the low cost of 3D printing and robotic assembly, it will be possible for companies to come to market much faster than ever before and to make products at reasonable prices in much lower volumes.

For consumers, we believe this will mean customized products and faster service. Live in an old house? We can make a washing machine that fits perfectly in the odd space beneath the stairs. Need a spare part for it? The service technician will print one while you wait – no second visit required.

Producing hearing aids is already cheaper today using a software-defined supply chain, yet will be dramatically more so in the future largely as a result of 3D printing. Manufacturing a hearing aid will also require far fewer external suppliers, and the optimal supply chain will shift from one that is global or national today to a city level by 2022, according to IBM’s forecast.

While hearing aids were the most dramatic of the products tested, the trend and results were the same everywhere: Big, complex and global is giving way to small, simple and local.

Partners may become competition

For enterprises moving into this new era, the opportunities are as enormous as the challenges. In order for businesses to reap the benefits, they will need to contend with a wave of potential new competitors. Many of these may be key suppliers that used to be part of their extended value chain.

Companies will also have to face the risk of product piracy that comes with fully digital manufacturing and design. Traditional sources of profitability are also under pressure, as customers may choose to print their own spare parts instead of buying them. In the end, no part of the value chain or competitive landscape will go unchanged.

You can read the full IBM report on the Software Defined Supply Chain here, or on the IBM IBV app available through iTunes and Android.

Paul Brody is vice president and global industry leader for electronics at IBM. He leads the electronics industry organization within IBM’s Global Business Services unit.

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