3D Printing: The New Industrial Revolution That Will Change the Landscape of Credit Risk Management

In the July/August 2013 issue of Business Credit, I informed readers that the future is already here, it just needs to be created by 3D printing. In that article, I began the discussion of what 3D printing (3DP) is and the effect it will have on our lives. In this article, I will discuss the possibilities further, and what industries and countries stand to be the most impacted, whether for better or worse.

3D printing is the process of "printing" an object layer by layer, fusing them as the object is built. Anything can be scanned and reproduced or scanned, adjusted and printed. 3D printing is an industry with seemingly unlimited growth and market potential. The boom in this industry may be near, as the core patents for selective laser sintering (SLS) technology expired last month, opening the field to more research and development and eventually lowering the cost for the printers based on this technology. SLS manufacturing improvements could lead to a vast reduction in the cost associated with making certain goods within five years. This will lead to a huge revolution in mass production and the way items are distributed.

With the expiration of the SLS patents, prices will eventually drop for this costly 3D printer. However, 3D printers based on fused deposition modeling (FDM) technology are available now from about $500-2,500, and internet and brick-and-mortar businesses already exist, selling 3DP machines, supplies and objects and offer services much like an Etsy forum where individuals can sell their printed objects. If you don't own a 3D printer, you can buy what you want or have one of these businesses make it for you. To learn more about 3DP technology and printing, refer to my previous article or use a search engine to look up "selective laser sintering" and "fused deposition modeling." To see what's currently being printed and sold, take a look at websites like Shapeways.com or Thingiverse.com.

In February 2013, U.S. President Barack Obama mentioned in his State of the Union Address (www.youtube. com/watch?v=01gJYQEyBWc) that 3D technology "has the potential to revolutionize the way we make almost everything" and announced plans to open a network of 15 self-manufacturing sites in the United States as a way of revolutionizing the economy. Companies like Xerox and Hewlett Packard are already, or have announced plans to be, active in this market, and a natural assumption is to think that other companies already in the business of manufacturing printers and associated products, such as Epson, Canon and Lexmark, will follow. Other industries and whole countries are also already active. GE Aviation and Honeywell Aerospace will invest $3.5 billion over the next five years, and Singapore announced it will invest around $400 million during the same timeframe. China is about to invest $245 million to speed up developments, while private companies in China are already making similar investments.

Coming Changes

Once the average business and consumer owns 3DP technology, we will see a revolution in design and manufacturing. The plans for just about anything imaginable will be available for purchase, download and printing from internet sites. Practically anything will be able to be scanned and personalized. For example, the Van Gogh Museum in Amsterdam collaborated with Fujifilm in Japan to print an exact copy of an original Van Gogh painting last year.

In my last article, I rattled off some of the things a consumer will be able to do in their own home. I plan to scan and print my own Chinese Xi-An terracotta army chess set, a self-designed surfboard and Alhambra tiles for my bathroom, among other things. It is going to be a funny and colorful world.

Here are a few things that are already possible to print:

* Pizza, burritos, candy, chocolate and cheese in various shapes and colors.

* Helmets, facemasks and other sports equipment specific to your dimensions.

* Snacks for dogs and cats.

* Consumer grade leather.

* 4D materials: Using nanotechnology, these printed materials can adapt to the environment in size or shape or even self-assemble from parts into the final object such as camouflage uniforms that change in color or brightness depending on exposure to light or a mild-weather car tire that morphs into the compound of a winter tire when the temperature drops are some examples. More about 4D printing can be found at qz.com/130253/3d-printing-is-becoming-4d-with-shapeshifting-objects.

Will Credit Anticipate and Adjust or Play Catch-Up?

This is where it gets interesting in the business world. How will businesses and industries adapt to the new technology, especially where the business model is based on a product that 3D printing will completely place in the hands of the consumer? Ways to control loss of profit, market and rights will certainly abound. Governments, for one, will need to adjust to avoid losses in tax revenues: sales, GST/VAT, etc.

In the Netherlands, the VAT is currently 21% on most products bought by consumers. Also, the government should expect changes regarding the import duties. Currently, in certain cases, import duties are charged on the value of the imported finished product. With 3DP, import duties can only be charged for the value of the raw materials the printers use (which is normally much lower), and the materials could be sourced from other countries with another regime regarding charging import duties. Taxing authorities will certainly find a way to compensate for the loss in VAT, and this could mean many changes for companies in terms of charging taxes in their systems. Gartner, a technology research company, has suggested potential losses of around $100 billion per year to 2018 if protection is not created.

Credit will surely need to adapt to the developing 3DP world. The customer base will likely change, for example, from agents and wholesalers to the end user directly. As the locations of the customer base expand, so will the potential for country and industry risk (see table), which will also create new types of credit risk and the payment methods affected companies will use.

My industry is still in the throes of the impact of digital delivery. I work in publishing, which has changed dramatically over the last five to eight years. My company, Reed Elsevier, has moved away from printing most of our products because they are available digitally, and now focuses on being a content provider. In many ways, some of the things that have already taken place in the publishing industry's transition from print to digital will occur in other industries once 3DP becomes the norm. There have been major shifts in customer segmentation, away from agents and wholesalers and toward end users directly, which has reduced risk concentration by spreading it out among several smaller customers as opposed to a few large distributors and agents. The increase in the number of customers and the type of customers has introduced new types of payment methods, and I would expect an increase in credit card payments as 3DP enables end users and individuals to be their own manufacturers. The exchange of electronic information will increasingly grow to replace physical shipments, which will alter the way that credit professionals manage shipping risks and customer deductions.

In other areas of business, change may include selling certain business activities that no longer fit into the current business strategy, while making new acquisitions at the same time. Banking could be in for a surprise as the fundamentals of risk evolve for certain industries that could be negatively affected by 3DR For example, what do you do if a customer that manufactures packing material in Western Europe asks for a new 15-year loan and wants to expand their production line when you know the packaging industry will take a hit when 3DP takes really off?

Revenue forecasts for 3DP range from $3 billion in 2018 up to $ 10 billion in 2020. At the end of May 2013, McKinsey Global Institute Analysis published a report indicating potential revenues in 2025 between $230 and $550 billion. Did you know that 3DP has already created over half a million jobs in the United States during the last three years, bringing back outsourced jobs from low-production-cost countries? No one can exactly predict the revenue, but it would not be surprising if total revenue for the industry indeed hits the figures mentioned by McKinsey.

Affected Sectors, for Better or Worse

Health Care: The impact can be huge. The worlds population will potentially increase not only due to a growth in emerging markets, but also in well-developed countries where people will live much longer. In theory, implanted nano-robots will be capable of marking bad cells to be destroyed, or fix damaged cells or disconnected brain wires. Skin, bladder, heart, kidney, liver, cartilage, ligaments or sinew will be printed, completely changing the speed of surgical operations, the world of transplants, the donation system and even areas of medical specialty.

Pharmaceutical: When patents expire, pharmacists can print generic medications, or you can print them at home as soon as your doctor has mailed you the print file. For other pharmaceuticals, medications will be fine-tuned based on an individuals stem cells and printed at home with a chemical 3D printer. I predict that pharmaceuticals will focus on research and development instead of the production of medicines. More can be learned at: www.ted.com/talks/lee_cronin_ print_your_own_medicine.html.

Mining: Companies like BHP Billiton, Rio Tinto and Vale could apply new strategies such as having printing facilities near mining sites. Since a 3D printer uses only the necessary metal dust to fabricate a part, it's nearly a waste-free process and will eliminate transit times and associated costs of getting raw metal processed into a usable form, then on to the distributors that supply the carvers and cutters that finally sell to the end user.

Manufacturing: Huge manufacturing facilities like those of Boeing, Airbus, BMW and Ford, which already partly use 3DP, will probably require a lot of less space when more options become fully available, meaning that many current manufacturing machines will become obsolete.

Affected Countries, for Better or Worse

Expected winners in the 3D printing race include China, Israel, Singapore, the United States and those in Europe such as Germany and the United Kingdom, all of which are investing heavily in the technology. China wants to be the leader in 3DP by 2016 and is in the process of changing its operations from manufacturing for the whole world into an economy where 3DP technologies will play a key role. It will, however, be somewhat burdened by the inevitable loss of some of its own manufacturing. Singapore is building a 3DP research center that is expected to open this May.

3DP is quickly adding compatible metals like iron, silver, stainless steel, aluminum and even a liquid metal that turns solid when printed at room temperatures. This could be beneficial to the big mining economies like Australia, Brazil, Guinea, Russia, South Africa and Ukraine. South Africa is already building a $15 million printer to manufacture and ship large titanium objects directly to end users.

The competition brought by 3DP may not be welcome by all. Countries with economies reliant on product manufacturing that 3DP will allow individuals to make for themselves-toys, apparel, textiles, shoes and more-could be big losers. These include Bangladesh, Brazil, Cambodia, China, Egypt, India, Indonesia, Malaysia, Mexico, Pakistan and the Philippines.

Technology vs. Crime

As with all steps forward, there are those who can't wait to use a new technology for ill gains. 3D printing will likely enable new types of crime, and put new spins on traditional schemes. Below is a list of known actions or crimes already committed using 3DP technology:

* Undetectable guns, gun parts and plastic knives have gotten through security portals.

* High security keys, made by taking a photo of the keys and creating a 3DP file, have allowed access to government buildings, elevators, handcuffs, etc.

* ATM slots were printed and used to skim cards, which were then printed and used to withdraw $100,000 from the banking accounts for those cards.

* Copyrights have been infringed and pirated brand name merchandise difficult to distinguish from the original is being created and sold. A huge market for these items exists in Africa and the Far East.

The accessibility and ease of the technology could impact honesty and integrity, and the level of respect for others for those not previously influenced. Credit professionals should think about the possible downsides for their company and start to take the necessary measures to account for a potential increase in risks pertaining to fraud, counterfeit competition and intellectual property theft.

Conclusion

This article only begins to touch on a future that includes 3D printing, and I stress that this material presented is my personal view as to the possible impact of 3DP on certain industries and the world in general. It is hoped that by presenting the things that could be made possible with this new technology, credit professionals will begin to consider how 3DP will affect their industry, company and job, and to start devising new ways to think about their company's products, distribution channels and revenue streams to mitigate the risks that lay ahead. 1

Once the average business and consumer owns 3DP technology, we will see a revolution in design and manufacturing.

Taxing authorities will certainly find a way to compensate for the loss in VAT, and this could mean many changes for companies in terms of charging taxes in their systems.

3DP is quickly adding compatible metals like iron, silver, stainless steel, aluminum and even a liquid metal that turns solid when printed at room temperatures.

Arnold Geelhoed is credit director EMEA at Elsevier BV in Amsterdam, The Netherlands. He can be reached at [email protected].

Assistance in writing this article was provided by the whole credit control team, but especially by Galal Lutfi and Julie Lane, credit controllers at Elsevier, the largest publisher in the Health Science and Science & Technology area. This article is written on a personal title and has no relation with the Elsevier publications.

Sources used to developed the article and a copy of the full table of industries impacted by 3DP may be obtained by contacting the author at the email address above.