Small manufacturing operations can produce complex products without a prohibitively large capital investment
Local Motors was founded in 2007 by John “Jay” Rogers, an Ivy league-educated ex-Marine who wanted to marry his lifelong interest in vehicles with new economic models. The result: Local Motors, a company that, after eight years in business, now produces a series of vehicles built locally in a handful of facilities, but designed by a global community of enthusiasts.
Local Motors — Inside a microfactory
Local Motors’ business model is built around its microfactories. The four now in existence — and the dozens more that the company plans to open over the next 10 years — each focus on a few vehicle types. Each looks to source components locally to the greatest extent possible. And each features a modular factory floor that can be configured and reconfigured as needed to accommodate the demand for individual vehicles.
Also central to Local Motors’ operations is its online community: designers, engineers, and gearheads all collaborating to design vehicles.
The company’s current flagship vehicle is Olli, a cognitive self-driving shuttle that can be hailed on-demand using a mobile app. Local Motors has also built an intimidating desert crawler known as the “Rally Fighter,” which will be featured in the upcoming Fast and Furious movie, the “Verrado,” an electric drift trike, and the world’s first 3D-printed car, the Strati, which was live-printed in 44 hours in 2014 at the International Manufacturing and Technology Show.
Micro-manufacturing: Harbinger of things to come?
Local Motors exemplifies the potential for creating small-scale distributed manufacturing networks: small, local manufacturing ecosystems enabled by shifts in the economics of production brought about by modern digital technologies. Thanks to the Internet and other communications and data storage technologies, search costs for physical and human resources have declined, knowledge sharing has become far easier, and funding models have become democratized. All of that is lowering barriers to learning, market entry, and commercialization at an increasing rate.
Manufacturing traditionally required a lot of capital. That is no longer always the case; entities like Local Motors are “hacking” the system to reduce capital expenditures. The impact has already been felt in the software start-up world, with nascent companies obtaining on-demand access to computing power and digital storage through organizations like Amazon Web Services and other cloud providers. Now, platforms such as Local Motors, Opendesk, and 100k Garages, accessing tools, on-demand, through entities like TechShop and FabLab, and financed through crowdfunding platforms like Kickstarter and Indiegogo, are combining to thread the fabric of distributed local manufacturing networks around the world.
This revival in small-scale local manufacturing will rely on economies of scope rather than economies of scale, which is to say, with increased modularization, the fixed costs of manufacturing can be spread across multiple types of products rather than just one product. The average cost decreases due to total production of a range of products, and as a result of learning across the different products, rather than simply as a function of increased production of one product. As unit production costs decrease, more products will better serve the needs of consumers who prefer customized or personalized products and services. Local microfactories can produce products, including vehicles, specifically designed to meet the wants and needs of the region they serve. While large-scale manufacturing will not go away, it will likely move upstream in the manufacturing value chain to produce components of higher quality and at a lower cost than would be possible with small-scale manufacturing — components that will then be assembled in unique combinations by an army of small manufacturers that build customized products to meet niche market demands.
Local Motors — Meaningful work and meaningful consumption.
Beyond economics, distributed local manufacturing may deliver benefits on a more human level: it can give people the chance to do meaningful work and engage in meaningful consumption. John Hagel describes what he calls the “passion of the Explorer” — characterized by a drive to constantly probe, test, and push boundaries to identify new opportunities and learn new skills; a tendency to seek out others to learn from and engage in problem-solving; and a desire to participate in, and have an increasing impact on, a domain for the foreseeable future. It may be that small, local organizations like Local Motors attract those with a passion for the work — or that such organizations are well positioned to cultivate passion in their workforce. This connection to meaningful work extends beyond Local Motors’ actual employees to the broader community that helps to design the vehicles and offers suggestions for continuous improvement. While only a few community members (those who win the design competitions and those who contribute meaningfully to the winning design by offering assistance and improvements before the submissions are reviewed and voted on) are financially rewarded for their contributions to the community, most find currencies such as reputation and trust enough of a reward to re-up their participation.
This same engagement and affinity extends beyond the supply side to the demand side of the equation as well. Although Local Motors’ customers no longer physically participate in the assembly of their vehicles, they do specify the customization and many are also part of the Local Motors community. This suggests a blurring of the line between consumer and creator. A growing number of consumers are seeking out ways to engage more meaningfully with the products they buy, from customizing items to individual specifications to actually participating in the production process as a co-creator. From candy to cars, an increasing variety of products are now being made to order — something at which small-scale, local manufacturing has the potential to excel.
Local Motors — Implications for Large Manufacturers.
The emergence of distributed small-scale manufacturing as a viable business model holds both threat and opportunity for incumbent large manufacturers. These new, agile additions to the manufacturing landscape will likely be much more nimble than traditional, scale-driven manufacturers, and many could offer consumers the opportunity to co-create products. Large incumbents that continue to pay attention only to the moves of their traditional competitors may face the prospect of “death by a thousand cuts” due to these smaller competitors.
However, rather than competing with these new upstarts, large manufacturers could instead find ways to work with them. Large manufacturers may even choose to enable, and indeed accelerate, the growth of the distributed local manufacturing phenomenon in a way that increases their own influence and their bottom line. They could do so by focusing on the scale- and capital-intensive portions of the manufacturing value chain and building product platforms that small-scale manufacturers can use to produce products customized to niche demand. Such may be the future of the manufacturing industry: a relatively few scale operators producing the components and maintaining the platforms that support thousands of small, “boutique” manufacturers covering the “last mile” to the consumer.
NewCo Shift guest contributor Duleesha Kulasooriya leads strategy for Deloitte’s Center for the Edge. Based in San Francisco, the Center helps senior executives make sense of and profit from emerging opportunities on the edge of business and technology. Local Motors is the first in a series presented by Deloitte on NewCo Shift exploring important economic shifts. Learn more at Deloitte.