3D Printing Spare Parts via IP Licensing Contracts
57 Pages Posted:
Date Written: August 26, 2020
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 largely digital networks with decentralized, local 3D printing. Particularly well positioned to drive this transition are original equipment manufacturers (OEMs) who design and produce capital goods. We propose an OEM to act as an intellectual property (IP) licensor by selling spare parts designs, rather than physical spare parts, via an IP licensing contract. With these designs a buyer can print spare parts locally with much shorter lead times and lower setup costs. Given the contract, each buyer chooses whether to stay in the traditional channel or switch to the IP licensing channel. We characterize the optimal IP licensing contract that maximizes the OEM's profit, as well as buyers' selection between the two channels, thus creating insights into the degree to which a supply chain decentralizes. Through a well-designed numerical experiment that reflects typical parameter ranges in practice, we demonstrate that decentralization occurs in a surprisingly large number of cases and we observe a significant profit increase for OEMs who adopt this new business model. Our results thus show that IP licensing by OEMs can be a major enabler in the transition to digital spare parts supply networks with decentralized 3D printing.
Keywords: 3D Printing, Spare Parts Inventory Management, Digital Spare Parts, Intellectual Property Licensing
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