Evaluating the Marginal Returns in the 3D Printing Industry HARVEY MUDD COLLEGE Final Project | HMC...

Evaluating the Marginal Returns in the 3D Printing Industry

HARVEY MUDD COLLEGE Final Project | HMC E117 Louis-Victor Jadavji & Andor Kesselman

Evaluating the Marginal Returns in Additive Manufacturing Paper submitted as a component of the final research project, a semester requirement of the Economics of Technical Enterprise course. 9.12.2013 Claremont, California Instructor: Prof. Remer


Abstract Additive manufacturing has overcome major scaling and engineering obstacles since its creation in the 1980’s. Innovations have reduced the overhead costs and labor of operating 3D equipment, and made venturing in the additive manufacturing industry economically viable in a variety of areas where it was not before. Direct Digital Manufacturing (DDM) applications have opened the door for increasingly affordable goods, quick deliveries, and greater customization. The purpose of this paper is to determine the marginal returns possible in additive manufacturing ventures that seek to disrupt niche industries. The study of 3D printing applications to the niche industry of orthotic shoe inserts is the basis for our final conclusions.


Table of Contents

Table of Contents Abstract ........................................................................................................................................ 2

Table of Contents ...................................................................................................................... 3

Abbreviations ............................................................................................................................. 5

3D printing Overview .............................................................................................................. 6 Applications .......................................................................................................................................... 6 Milestones ............................................................................................................................................. 7 Basic Development Process ............................................................................................................ 7 Future of additive manufacturing ................................................................................................ 7

Market analysis ......................................................................................................................... 8 Growth factors ..................................................................................................................................... 8 Ongoing costs of 3D printing .......................................................................................................... 9 Equipment ............................................................................................................................................. 9

3D Scanner ..................................................................................................................................................... 10 3D Printer ....................................................................................................................................................... 10 Materials ......................................................................................................................................................... 10

Choosing a niche industry ............................................................................................................ 10 Scanner investment analysis ............................................................................................. 10

Scanner Types ................................................................................................................................... 11 Scanner Analysis .............................................................................................................................. 12 An Additional Look at Tax Benefits ........................................................................................... 13

Printers and materials ......................................................................................................... 14 Objet Eden260V Printer ................................................................................................................ 14 Time considerations ....................................................................................................................... 15 Materials ............................................................................................................................................. 15

Context for Further Analysis of operating costs ......................................................... 17

Growth Analysis ..................................................................................................................... 19 Variable 1: Costs of Production .................................................................................................. 19 Variable 2: Price ............................................................................................................................... 19 Variable 3: Growth Factor ............................................................................................................ 20 Dependent Variable: Profit .......................................................................................................... 20 Understanding the Margins ......................................................................................................... 21

Developing a Price Model ................................................................................................... 21 Correlation ......................................................................................................................................... 22 Preliminary Studies ........................................................................................................................ 22 Regression Analysis ........................................................................................................................ 23 Analysis ............................................................................................................................................... 25

Conclusion ................................................................................................................................ 25


Appendix 1b ............................................................................................................................. 26 Descriptive Statistics of Data Set ................................................................................................ 26

Appendix 1.c ............................................................................................................................ 27 Regression Statistics ...................................................................................................................... 27


Abbreviations 3DP Three Dimensional Printing ABS Acrylonitrile-Butadiene-Styrene CAD Computer Aided Design CAM Computer Aided Manufacturing CNC Computer Numerical Control DDM Direct Digital Manufacturing EBM Electron Beam Melting EVA Ethylene-Vinyl Acetate FDM Fused Deposition Modeling PLA Polylactic Acid RP Rapid Prototyping SLA Stereo Lithography Apparatus STL STereo Lithography


3D printing Overview

Applications Charles Hull invented 3D printing in the 1980’s.1 In their nascent years, 3D printers were used to facilitate product development cycles through a process called rapid prototyping (RP),2 which reduces time spent for concept modeling, functional testing, fit and assembly, visual aid, etc. Evidently, RP has allowed some companies, especially in the defence and automotive industry, to reduce design costs and wait times. Hobbyists of all kinds soon became the catalyst for more direct applications of “additive manufacturing”, the formal name for the process of 3D printing. Steep reductions in initial investment requirements for additive manufacturing operations, and greater material versatility overall, has reduced the barrier to entry for manufacturers to use the technology as a means to produce goods directly. This newer application is commonly referred to as Direct Digital Manufacturing (DDM). 3 DDM produced goods that have received some notoriety in the additive manufacturing universe include the Aston Martin DB5 used in a 2012 James Bond flick, Victoria’s Secret fashion with movable parts, and organs printed replicated with human tissue. Companies like General Electric and Boeing have given DDM a powerful vote of confidence by integrating DDM parts in their own finished products.4 TYPES OF 3D PRINTING

1 3DSystems The Journey of a Lifetime http://www.3dsystems.com/30-years-innovation Accessed: December 12, 2013 2 "Infographic: The History of 3D Printing." ENGINEERING.com. N.p., n.d. Web. 11 Dec. 2013. 3 Jensen, Troy. “A Model of the Future.” Piper Jaffray, March 2013. Pg. 5-10 4 Mola, Paolo. "GE Views & News." GE Views & News. N.p., n.d. Web. 12 Dec. 2013.

http://www.3dsystems.com/30-years-innovation

http://www.3dsystems.com/30-years-innovation


Milestones Likely the greatest step forward in the realm of DDM, in respect to the scope of this document, was the advent of PolyJet technology created by Objet. Objet, merged with Stratasys (SSYS) in 2012, manufactures a series of 3D printers capable of printing with ultrafine layers of polymerized material.5 The PolyJet technology uses an adaptation of Fused Deposition Modeling (FDM) to print, which essentially applies a layer of material to a descending plate unto another layer, until the stacked layers form the desired shape per a computer aided design (CAD).6

Basic Development Process Additive manufacturing usually begins with a form of 3D CAD software, which is utilized by CAD designers and engineers to create three-dimensional objects on their computer. Google Sketch up is one example of a free CAD design program currently out on the market. A typical 3D printer will only be compatible with a Stereo Lithography (STL) file. Two commonly used design software by additive manufacturing evangelists are: (1) AutoCAD and (2) Solid Works. However, Linux flavors and Microsoft Windows now have their own 3D printer drivers integrated in their software, offering a new export module for users besides the high-end, sometimes overwhelming, CAD software.7 DEVELOPMENT PROCESS FDM-ENABLED DDM

Future of additive manufacturing Consistent with the vision of legislators to reenergize the “Rust Belt” and return manufacturing jobs to the United States of America, President Barack Obama proposed a $1 billion investment in additive manufacturing and the establishment of a $30 million

5 Hurst, Nathan. "3-D Printing Giants Stratasys and Objet Merge to Create $3 Billion Firm." Wired.com. Conde Nast Digital, 03 Dec. 0012. Web. 12 Dec. 2013. 6 "FDM Technology." Stratasys. N.p., n.d. Web. 12 Dec. 2013. 7 Hachman, Mark. "Microsoft Debuts 3D Printing App for Windows 8.1." PCWorld. N.p., 15 Nov. 2013. Web. 12 Dec. 2013.


pilot institute aimed at boosting the use of 3D printers in U.S. manufacturing. 3D printing can disrupt manufacturing on a global scale, and reduce the U.S.’s need for imports of manufactured goods from emerging economies. It would, in other words, democratize the manufacturing process. The strength of 3D printing comes from its ability to make individual, specifically tailored parts on demand, rather than churning out thousands of standard products with a factory's worth of assembly-line equipment. This can prove especially cost-effective for making the complex parts of specialty devices or equipment in small batches or on a one-off basis, such as replacement parts for a fighter jet or a vintage vehicle customized for an individual or company needs. With the advances in additive manufacturing technology in recent years, a select few companies have moved beyond machining and prototyping to DDM, using an array of materials ranging from metals to polymers, and using the full range of 3D printing tech available, including, but not limited to: Selective Laser Sintering (SLS), Fused Deposition Modeling (FDM) and Electron Beam Melting (EBM).

Market analysis

Growth factors Based upon prior market growth within the 3D printing industry, we believe that the market is moving toward a position in which customizable 3D consumer products will be economically justified. As you can see from the graph below, usage of CAD software and 3D printers has been steadily increasing the last 5 years.

8 8 Jensen, Troy. “A Model of the Future.” Piper Jaffray, March 2013. Pg. 5-10


The production of 3D printers is becoming more affordable, and a steep escalation in media attention, increasing the overall awareness for the potential of additive manufacturing, has attracted many more companies to enter an already very competitive market.9 Because of this upswing in competitive pricing and more varied product offerings, we expect prices to continue declining. Thusly, a reduced initial investment to start producing goods through additive manufacturing will motivate more companies to opt in.10

Ongoing costs of 3D printing Currently, there is large variance between the costs associated with material consumption in 3D printing projects. Lower priced commercial 3D printers typically range from $3,000 - $5,000 per system, per year range, but higher systems can achieve up to $12,000-$20,000 per system, per year, per range.11 AVERAGE MATERIAL COSTS OF 3D PRINTING - ANNUAL

Research estimates that proprietary consumables have gross margins within the 70 to 80 per cent range, and that operating margins lie within the 50 to 60 percent range. Therefore, we can expect that the net marginal income made on the typical 3D printing machine to lie between 20 to 30 per cent.

Net Marginal Income = Marginal Gross Income – Operating Margins. These calculations are done assuming no taxes.

Equipment We looked at three direct costs that factor into 3D print production. As a theoretical paper, we acknowledge that a practical venture into the market would require significant extra costs, including, but not limited to: payroll, rent, and marketing expenditures.

9 Jensen, Troy. “A Model of the Future.” Piper Jaffray, March 2013. Pg. 5-10 10 Ibid. 11 Ibid. 12


3D Scanner A 3D scanner is used to assemble data on the shape, and other aspects, of an object, to then be transferred to a computer in as a three-dimensional model for adjustments, and eventual replication.

3D Printer A 3D printer produces a solid object based off of a computerized file of a three-dimensional model, and uses most commonly, in the case of FDM printers, spools of PLA or ABS plastics as raw material. The printer head, also known as the “extruder”, extrudes the polymers and plastics from a very fine point and deposits it layer by layer.

Materials The materials used by 3D printers range from metal powders to transparent resins to rubber-like polymers. In the case of FDM printers, materials that can be heated and melted, like a glue-gun would melt a rod of solid glue, can be used. In this paper, thermoplastics are the basis for most additive manufacturing processes.

Choosing a niche industry Typically, orthotic inserts are designed to optimize the spread of biomechanical stresses and provide a more natural inclination for the foot. Being currently manufactured with milling machines, much material is wasted as part of the cutout.12 With a PolyJet FDM-type printer, like the Objet series manufactured by Stratasys, thin filaments can be deposited neatly to create a portion of the insert, a layer at a time. The versatility of the materials available in additive manufacturing, especially those compatible with a single Objet printer, for example, allow for a wide range of customization in orthotic insert production with different levels of tensile strength and absorption to create either hard or soft orthotic shoe inserts. Additive manufacturing also allows for different types of webbing, or deposition of material, to enhance particular properties of materials at different parts of the insert, in effect, giving even a single-material insert a multi-material experience.13 Current industry standards for custom orthotics put the cost of material at $70-$120 per pair of inserts.14

Scanner investment analysis This section is devoted to selecting a scanner to scan the surface of feet. The scan’s 3D rendered computer model will have the dimensions needed to print a custom orthotic insert. Four professional 3D scanners were considered. Note: there are significant developments that could nullify the need for a scanner, such as iPhone applications that fulfill the same purpose using the in-built camera. 12 Janke, Adam. "Consultation with Adam Janke - Orthotics Specialist." Interview by Louis-Victor Jadavji. 13 Ibid. 14 Ibid.


Scanner Types The NextEngine 3D Scanner is a model made by NextEngine located in Santa Monica, California. The NextEngine 3D Scanner is the most affordable professional grade scanner on the market. In areas of performance, the NextEngine 3D printer is the lowest quality of the four printers. It has a field size of 5.1” x 3.8”. It has a resolution of 400 DPI and operates in two modes: macro and wide. In “macro”, dimensional accuracy is about .005 inches and in “wide” mode, the dimensional accuracy decreases to .015. For a system that sells at $2995, the system has remarkably high specs.15 The images are processed in color, and the system processes about 50,000 points per second, which translates to approximately 2 minutes per scan of each facet. Purchasing of the NextEngine requires extra costs that are not addressed here. MicroScribe is the next most affordable alternative to the NextEngine, and costs approximately $16,000. The MicroScribe scanner is a unique system that operates along a swivel-based interface. The speed of the MicroScribe scanner is up to 45,000 per second, and is accurate to .002 inches.16 The MicroScribe scanner is easy to configure, has an intuitive interface, and offers a highly flexible demonstration of production capacity. The 3D3 Printer is an extremely flexible system that offers extremely quick processing of scans. The HDI Advance scanner takes a miniscule .88 seconds a scan at an accuracy of .0018 inches in the 200mm diagonal field of view.17 At $17,000, it is extremely competitive with the MicroScribe. While it cannot add color to the 3D rendered computer file, we consider this feature unnecessary for the printing of inserts. One of the practical disadvantages to the scanner is that it must sit on a stationary apparatus, which can present several challenges when scanning feet. Finally, the Creaform scanner is the premier scanner on the market. At a retail value of $50,000, it requires the greatest initial capital investment. The VIU Scan model scans 18,000 measures a second at an accuracy of .002 inches, and supports color scanning.18

15 Next Engine Scanner Specs. NextEngine, December 12, 2013. http://www.nextengine.com/products/scanner/specs. 16 “Microsribe 3-D Laser Scanner.” Solution Technologies, December 12, 2013. http://www.3d-microscribe.com/msRSI-laser_0506_v1-LR.pdf. 17 “3D3 HDI Advance Ultimate System for Scanning Complex Objects.” 3D3 Solutions. Accessed December 12, 2013. http://www.3d3solutions.com/products/3d-scanner/model-comparison/. 18 “TECHNICAL SPECIFICATIONS: HANDYSCAN 3D HANDHELD 3D SCANNER.” Creaform. Accessed December 12, 2013. http://www.creaform3d.com/en/metrology-solutions/products/portable-3d-scanner/technical-specifications-handyscan-3d.


Scanner Analysis As a preface to our analysis, we only observed the direct costs associated with scanning an object. We did not consider many of the extra features offered by each scanner within our analysis.

Three factors were considered in the scanner report: (1) cost, (2) speed, and, (3) accuracy. The graph above demonstrates the initial costs of the 3D scanner and the table below shows the cost per .001 inch of accuracy in scanner equipment.

As you can see from the table above, Creaform is clearly the most expensive per .001 inch of accuracy. The NextEngine outperforms all the other alternatives in terms of cost effectiveness ratio per 0.001 inch of accuracy. Despite this lead, it is important to consider that NextEngine provides the lowest accuracy of all the 3D scanners at .005 inches. It is possible that the practical accuracy measures of the 3D scanners are less than the marketed value, which may be an important factor to consider within our analysis.19 Potentially one of the greatest obstacles in a 3D printing endeavor will be the issue of scaling the rate of production. To mitigate some of the typical problems associated with production rates, a 3D scanner that scans quickly is necessary to meet demand. Assuming that the scanning time is significantly faster than the printing time, a faster scanner can potentially send out multiple scans to multiple printers. In comparison to 19Rough Draft Notes, Professor Remer, Harvey Mudd College December 10, 2013


the initial investment of the scanner, models like the 3D3 HDI Advance cost roughly $0.019 per scan while the NextEngine costs $0.034 per scan. This is assuming that the 3D3 HDI Advance will create a full object image in three minutes versus a thirty-minute scan time for the NextEngine. Using the above time estimates as a reference, if the 3D scanners were running all day for a full year, we reach the conclusion that the HDI Advance Scanner at full capacity is a significantly better investment.

An Additional Look at Tax Benefits HDI Advance Scanners are expected to last five years without professional maintenance.20 As an additional factor in profitability and cost estimates, we calculated potential tax benefits of investing in each scanner. It appears that the most appropriate lifecycle for a MACRS depreciation analysis is five years, as such; we analyzed the potential tax benefits using a five-year MACRS depreciation analysis. The graph below displays the deprecation values of each of the scanners. As expected, the greatest tax deductions result from purchasing the more expensive systems.

From a different accounting perspective, the graph below represents the book value over time for the 3D scanners.

20 Bryker, Brad. Next Engine 3D Scanner Interview. Email, December 2, 2013.


The above graphs are useful in providing context for a 3D scanner tax evaluation. This information will be useful in estimating true costs, and cost recovery, in the 3D scanning industry.

Printers and materials There are many 3D printers available. Stratasys (SSYS) and 3D Systems (DDD) carry full series for hobbyist, mid-range, and production-quality 3D printers. Because 3D printers are associated with the material products from their respective manufacturers, it is best to select a printer first, and then explore material options in the pools provided by either Stratasys and 3D Systems.

Objet Eden260V Printer Every facet of the orthotic insert manufacturing process can be professionally and rapidly accomplished with an OBJET EDEN260V printer. While other Objet-line printers have the same or greater capacity for materials, size of print, and speed, the EDEN260V is the most affordable at $46,000. Following are the product specifications relevant to our analysis:21

• Choice of 17 materials • Ultrafine16 micron layers for detail • 260 x 260 x 200 mm (10.24 × 10.24 × 7.9 in.) tray size and quiet • PolyJet technology • Variety of materials including:

o Family of Rigid Opaque materials (Vero family) in a variety of colors including white, gray, blue and black

o Polypropylene-like material (DurusWhite) for polypropylene-like snap fit applications

o Family of Rubber-like materials (Tango family) suitable for a range of applications requiring non-slip or soft surfaces

21 "Objet Eden260V." Stratasys. N.p., n.d. Web. 12 Dec. 2013.


If we wish to avoid the upfront costs of an expensive 3D printer like the EDEN260V, we could opt for an open source 3D printer like the RepRap, but there will be hidden costs in researching and developing a custom polypropylene extruder with a widened axis to accommodate larger sized foot sizes.

Time considerations The current conditions in the orthotic insert production industry are ripe for change, as production on a milling machine is very time consuming,22 because inserts have a complex shape, they require that the milling machine readjust its axis several times during the process. In the case of additive manufacturing, the machine does not require an attendant during printing, and will not require much adjusting after specifying which computerized file to produce the orthotic insert from. Once the design file is received, it will take 45 +/- 3 minutes to print and assemble a pair of Hard, Male Size 10 Inserts and 35 +/- 8 minutes to print a pair of Soft, Male Size 10 Inserts using an OBJET EDEN260V printer.23

Materials For the soft-type insert, a rubber-like 3D printing material like Stratasys TangoBlackPlus FLX980 will be used to create the base, and a negative 3D printed EVA sheet, with pores 10mmx4mm, will be epoxied onto the soft base to allow for maximum breathability. EVA can be replaced with grades of foam in Dow Chemicals’ Engage series. A blend of Engage and EVA may provide greater compression abilities, but will require more elaborate testing to determine breathability.24 We investigated the cost of materials, and found that some hobbyists were printing orthotic shoe inserts with typical ABS, PLA, and nylon. After much consideration, and consultation with experts in the orthopedic industry, including Paris Orthotics, we opted for better imitations of materials used in high-end orthotics, sold between $350-$400.25 LOW-END MATERIAL COSTS

22 Benster, Tyler "Interview with 3D Printing Evangelist" by Louis-Victor Jadavji 23 Ibid. 24 “PolyJet Materials Data Sheet.” Stratasys. Accessed December 12, 2013. http://www.stratasys.com/~/media/Main/Secure/Material%20Specs%20MS/PolyJet-Material-Specs/PolyJet_Materials_Data_Sheet.ashx. 25 Price Compare - 3D Printing Materials - Filament. 3ders.org, 2013 2011. http://www.3ders.org/pricecompare/.


26 In the use of high-end materials, we determined that there was a steep inclination in production costs per pair of inserts between hard and soft versions. The average production cost estimates that accounts only for base material and supporting and assembly material costs for Soft, Male Size 10 Inserts was $43.18. HIGH-END MATERIAL COSTS FOR SOFT INSERTS

Because hard inserts require a very rigid material with high tensile strength and flexibility, fit enough for high-impact athletes to use, we opted for 3D-ready DurusWhite, while extremely costly, needs only a layer about 0.15cm to be effective in an orthotic shoe insert. The average total material costs for a Hard, Male Size 10 Inserts is $82.28. Based on our data for the average cost of production per orthotic insert using 3D printers, we can determine that we are on par with cost of production done without 3D printers, while the later model has reached scale and material costs are likely shrunk as a result. In the future, revolutionary material advancements by companies like HP, will allow for a more diversified selection of 3D-ready polymers that also combine the

26 “Taulman 645 Nylon 3D Printer Filament.” MakerGeeks.com. Accessed December 12, 2013. http://makergeeks.com/ta645ny3dprf.html.


properties of many into one or a few types. Whether “hard” or “soft”, we will be printing orthotics with a single, cost-affordable material.27 HIGH-END MATERIAL COSTS FOR HARD INSERTS

Context for Further Analysis of operating costs The following will provide context for where further cost estimations can be carried out, beyond our pre-determined cost factors of investing in a (1) 3D printer, (2) 3D scanner, and (3) materials. Horngren et. al (2007) predicts the estimated costs of the 3D printing process. He labels primarily four cost segments within production: (1) production, (2) material, (3) execution, and (4) postproduction.28 There are a variety of costs associated with the stages not addressed in our analysis, but should be considered in further research. These include, but are not limited to: model material filament, machine work per hour, energy, support, and maintenance.

27 “OBJET Price Order Form.” OBJET Geometries, Inc. Accessed December 12, 2013. http://library.constantcontact.com/download/get/file/1101646655924-47/ObjetPriceList.pdf. 28 Pereira Mello, C. H., Rafael, C. M., Bruno, R. P., Edson de, O. P., Eduardo, G. S., & Rodrigo, T. S. (2010). Systematic proposal to calculate price of prototypes manufactured through rapid prototyping an FDM 3D printer in a university lab. Rapid Prototyping Journal, 16(6), 411-416. doi:http://dx.doi.org/10.1108/13552541011083326


Production costs are mostly tied to software, computer, and other energy costs. These costs are the costs associated with the simple operation of indirect equipment used to create the 3D models. The formula for production costs is denoted by the following equation:29

Execution costs are the costs of running the 3D printer. The execution costs are modeled by the equation:

Where the cost of execution is the model execution time multiplied by the machine running costs: The costs of materials are denoted by the equation below, and represent a more detailed analysis of the projected $43.18 costs we projected. The cost is dependent on factors such as the amount of volume utilized, support volume utilized, etc.:

Finally, the postproduction costs are examined:

In this equation, expenses such as cleaning the cartridges may significantly impact the costs. Ultimately, a more detailed cost analysis would suggest that the final costs associated with running a 3D printer are marked by the equation:

Cfinal product = Cproduction + Cexecution + Cmaterials + Cpost production

There are potential limits to our cost analysis, and the aforementioned formulas may be of assistance when further analyzing costs and margins when a proof of concept has been made.

29 For further information on the variables associated with this and subsequent formulas, please see the appendix.


Growth Analysis The primary purpose of this paper is to analyze the potential benefits of DDM printing over the direct costs associated with the 3D printing industry overall. To understand these dynamics, we have created a basic model to demonstrate the expected growth projections of the orthotic insert industry. There are four independent variables that we investigate in our projects: (1) costs of production, (2) price, (3) growth factors, (4) profits.

Variable 1: Costs of Production In this model, we’ll assume that the average cost of production per insert is $70; a reasonable estimate considering that we formerly estimated a potential direct material cost of about $43.18 for soft inserts, but see a penchant towards hard insert demand by premium customers. In addition, we expect to incur costs beyond the investment in a 3D printer, 3D scanner, and materials. To calculate the total present value of the costs, we modeled it after the equation:

Cost = NPV (n; Cash Flows; .08)

Where: Cash Flows = $70 * Quantity * Base Value

Because costs remain fixed in our model, we expect to see a linear relationship between quantity of inserts made and the associated costs with a project. The graph below represents the typical costs of a five-year project when held at a quantity of 1000.

Variable 2: Price In this model, we assume that no working capital costs are incurred. As such, this project incurs no fees from the inability to sell a product. Using these assumptions, every insert pair we make will generate an expected return on income. A more detailed analysis would consider the amount of inserts being deployed and not sold. To calculate the present value of the revenue, we use the following equation:

Revenue = NPV (n; CF; .08)

Where:


Cash Flows = Price * Quantity * Base value In this revenue model, all the variables impact the return on investment.

Variable 3: Growth Factor The projected growth of a startup is rarely linear. Typical startup projection phases have early growth in the beginning due to early adopters. After an early adoption phase, growth declines for a period before stabilizing.30 Due to limited data of the 3D printing industry available, exact factors of demand and growth curves cannot be established. To compensate and address the need for such factors, we provided our own growth chart with projected growth factors included. The factors are arbitrary:

In the models, we use these factors as a basis to map our fluctuating demand within the 3D printing industry. The growth factors are represented thusly:

Costs = NPV (n; CF; .08)

Dependent Variable: Profit The dependent variable in our analysis was profit over time. Ultimately, this can be represented by the equation:

Profit = Total Revenue - Total Costs Profit is discounted over time in this equation. Our payback period can be determined by the following:

Total Costs – Total Revenue = 0

30 Blank, Steve. How To Build a Startup: Market Type and Revenue Lecture. 5:31. udacity.com. Accessed December 12, 2013. https://www.udacity.com/course/viewer#!/c-ep245/l-48730232/m-48734288.


Understanding the Margins Using this model to demonstrate the effects of price and quantity provides a basic profit model per pair of orthotic inserts. As the quantity and price of the inserts are linear, the adjusted gross income expected of the industry is denoted below:

This demonstration relies on the cost being fixed at $300 per pair of orthotic inserts. Over time, the margin rate is exponential as seen by the graph below:

The graph above suggests an increasing rate of return as the revenue increases. This is expected because the revenue is increasing faster than the cost, and also means that we can expect increasing marginal returns as the project generates greater revenue.

Developing a Price Model Our primary goal in this analysis was to ultimately develop a price model to analyze the effects of the independent variables on the rate of return. To develop this model, we ran the numbers for over 1,000 scenarios calculating the cost, revenue, total cost, total


revenue, margins, and profits. We subsequently ran a regression analysis to determine a model best fit for the accompanying data. Using profit as the dependent variable, and cost and revenue as the independent variables, we ran interactive terms to determine the beta properties for the regression analysis.

Correlation Diagnosing the correlation was the first step to understanding the relationship between price, quantity, and profit. The graph below shows correlation factors with regard to quantity, price, and profit.

According to our data, we can expect a high correlation between the price and the quantity with the profit and little correlation between price and quantity. However, the price has a greater correlation with the profit than the quantity does. This potentially has significant consequences if a venture modeled on this analysis were scaled, and will likely lead to price markups to accelerate growth.

Preliminary Studies Prior to the regression analysis, specific test cases were observed to understand a context for profit analysis. We determined through our analysis that the 3D printing industry has high potential for accelerated rates of return. Embedding the growth factors into the quantity, at a $300 price point, with 1,000 pairs of orthotic inserts sold, we expected a payback period of less than one year:

At a $9 profit margin, and a $79 retail value, we still see a return on investment.


When the retail value is $300, we expect at a base quantity of 30 per year to still make a return on investment.

The graphs above prove that the 3D printing industry has high potential for profitable enterprise. Even with relatively little marginal profit, there is still leeway for strong returns.

Regression Analysis In determining how price and quantity affects profit margins, a regression analysis was performed on over 1,300 data points using our equations. A traditional cost price model is represented by the following equation:31

This analysis can be improved with market research, and until these are factored in, it is impossible to determine price and quantity as variables dependent of each other; rather, this analysis theorizes that the variables are independent of each other. At a 95% confidence interval, we determined that at $70 per pair of orthotic inserts the equation

31


below represents the profit equation. This regression was done using year 5 (final profit) as the only price point within the data set:

This analysis was general consisted particularly within the lower values. Variance and residuals increased as the values became larger. The graphs below demonstrate the lines with residuals fit to both the price and the quantity variables:32

32 For more information on the specific coefficients, t-stats, and more on the regression analysis, please refer to the appendix


Analysis This model described in this section provides insight into the actual profit generated over the lifetime of an investment. While it grows more inaccurate as the project becomes bigger, it will allow for some capacity of managing profit expectations in the smaller to mid-scale operations of an orthotic insert manufacturing company using additive manufacturing. Future tests should consider testing market demand for 3D products and doing a regression analysis on the interactive terms between the values represented in this paper, and will result in very accurate price analytics over future growth.

Conclusion The orthotic industry is ripe for disruption, and the high potential for capital returns makes it a worthy candidate for a niche application of additive manufacturing technology. Based on the assumptions made at the beginning of our analysis, we can deduce that the margins provided by the rapid production of inserts on a small scale are enough to fuel future growth. The relatively small capital investment of a 3D printer and 3D scanner far offset any overhead costs typically sustained by a manufacturing company currently producing orthotics, who currently operate with inefficient milling machines, waste valuable materials, and have are notorious for their slow production cycles sometimes lasting weeks.


Appendix 1A Descriptive Statistics of Data Set

Year

Quantity with

GrowthPrice

Squared Price Base Cost RevenueTotal Cost

Total Revenue Margins Profit

Mean 2.5 Mean 199.742 Mean 44617.5 Mean 181.5435 Mean 2.283333 Mean -21473.6 Mean 27380.35 Mean -95063.8 Mean 91106.67 Mean 5906.722 Mean -3957.16Standard Error 0.04599

Standard Error 7.242701










Median 2.5 Median 90 Median 19600 Median 140 Median 2.1 Median -9335.47 Median 10205.87 Median -75947 Median 36991.31 Median 3334.858 Median -50037Mode 0 Mode 0 Mode 4900 Mode 70 Mode 0 Mode -63000 Mode 0 Mode -63000 Mode 0 Mode -63000 Mode -63000Standard Deviation 1.708444

Standard Deviation 269.0544










Sample Variance 2.918782


Sample Variance 2.63E+09









Kurtosis -1.26882 Kurtosis 2.379894 Kurtosis 1.000434 Kurtosis -0.31769 Kurtosis -1.25405 Kurtosis -0.70811 Kurtosis 14.16808 Kurtosis 1.522454 Kurtosis 7.64858 Kurtosis 7.415771 Kurtosis 10.05942Skewness 0

Skewness 1.743786

Skewness 1.480757

Skewness 0.949261

Skewness 0.233943

Skewness -0.9411

Skewness 3.267364

Skewness -1.5378

Skewness 2.454677

Skewness 1.56553

Skewness 2.893162

Range 5 Range 1250 Range 175725 Range 355 Range 5 Range 74952.33 Range 364369 Range 188166.1 Range 913949.7 Range 367355.3 Range 763416.8Minimum 0

Minimum 0

Minimum 4900

Minimum 70

Minimum 0

Minimum -75017.1

Minimum 0

Minimum -251166

Minimum 0

Minimum -63000

Minimum -63000

Maximum 5

Maximum 1250

Maximum 180625

Maximum 425

Maximum 5

Maximum -64.8148

Maximum 364369

Maximum -63000

Maximum 913949.7

Maximum 304355.3

Maximum 700416.8

Sum 3450 Sum 275644 Sum 61572150 Sum 250530 Sum 3151 Sum -3E+07 Sum 37784885 Sum -1.3E+08 Sum 1.26E+08 Sum 8151276 Sum -5460880Count 1380 Count 1380 Count 1380 Count 1380 Count 1380 Count 1380 Count 1380 Count 1380 Count 1380 Count 1380 Count 1380


Appendix 1B Regression Statistics

SUMMARY OUTPUT

Regression StatisticsMultiple R 0.782147R Square 0.611754Adjusted R Square 0.604852Standard Error 77019.31Observations 230

ANOVAdf SS MS F ignificance F

Regression 4 2.1E+12 5.26E+11 88.63242 4.15E-45Residual 225 1.33E+12 5.93E+09Total 229 3.44E+12

Coefficientsandard Erro t Stat P-value Lower 95%Upper 95%ower 95.0% Upper 95.0%Intercept -182790 23119.27 -7.90639 1.18E-13 -228348 -137232 -228348 -137232.0239Year 0 0 65535 #NUM! 0 0 0 0Quantity with Growt 223.5402 21.60562 10.34639 #NUM! 180.965 266.1155 180.965 266.1154697Price Squared -0.26306 0.493514 -0.53303 0.594539 -1.23556 0.709443 -1.23556 0.709442624Price 896.7072 234.6261 3.821856 0.000171 434.3616 1359.053 434.3616 1359.052738


References

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Blank, Steve. How To Build a Startup: Market Type and Revenue Lecture. 5:31. udacity.com. Accessed December 12, 2013. https://www.udacity.com/course/viewer#!/c-ep245/l-48730232/m-48734288.

Bryker, Brad. Next Engine 3D Scanner Interview. Email, December 2, 2013. "FDM Technology." Stratasys. N.p., n.d. Web. 12 Dec. 2013 Hachman, Mark. "Microsoft Debuts 3D Printing App for Windows 8.1." PCWorld. N.p., 15

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microscribe.com/msRSI-laser_0506_v1-LR.pdf. Next Engine Scanner Specs. Next Engine, December 12, 2013.

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Rough Draft Notes, Professor Remer, Harvey Mudd College December 10, 2013 “Taulman 645 Nylon 3D Printer Filament.” MakerGeeks.com. Accessed December 12, 2013.

http://makergeeks.com/ta645ny3dprf.html. “TECHNICAL SPECIFICATIONS: HANDYSCAN 3D HANDHELD 3D SCANNER.”

Creaform. Accessed December 12, 2013. http://www.creaform3d.com/en/metrology-solutions/products/portable-3d-scanner/technical-specifications-handyscan-3d.

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