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Stratasys Published Imperative to Expand the Direct Digital Manufacturing Business Requires New Configuration and Pricing of the Fortus Product line
Originally Written January 22, 2015
- Direct Digital Manufacturing [D.D.M.] is the idea of adoption of 3D printing deeply into manufacturing processes to make end use parts and tooling, well beyond the traditional use for rapid prototyping
- This D.D.M. imperative is published and promoted by SSYS as a large part of future growth and profits
- Fortus F.D.M. is the primary SSYS technology that can penetrate deeply into the manufacturing environment
- However, Fortus machines are 200% to 300% overpriced vis a vis what should be their cost to manufacture
- As machine tools, their engineering and performance capability are below C.N.C. industry minimum standards
- Recent price and configuration changes (November, 2014) effectively reduced the offering in the line and increased prices
- To effectively implement the D.D.M. imperative, SSYS needs to have a comprehensive and coherent plan and model to maximize both vertical and horizontal market penetration, which plan and model are clearly absent
- Such a proven and relevant model already exists and is operating in clear view and broad daylight (Haas)
- To achieve this penetration, the Fortus line should be reconfigured, expanded and re-priced
- The expanded line and re-pricing should:
- Expand customer choices for machine work envelope and material combination choices
- Lower cost of ownership, including material
- Lower minimum entry-level investment to obtain the advanced technology
- Minimize and close the pricing gaps between models and sizes
- Upgrade machine repeatability and accuracy as well as overall construction robustness
November, 2014 Model and Price Changes
The Fortus line was significantly changed in November 2014. The 380 and 450 replaced the 360 and 400. Prior to that, the 360 and 400 were available in the configurations and approximate pricing here.
As of November, 2014, the 380 and 450 were priced and configured as per here.
- The a la carte material pricing was changed to bundles (except 900), giving the appearance of minimizing the customer investment or adding value. The reality is often the opposite.
For example, prior to the change, an end-user could purchase a small envelope 360 to run ASA and Nylon 12 for about $117,400 all-in initial investment. With the new 380, the investment is now over $170,000 to get the functionality of these two materials. While the end-user obtains only a very slightly larger work envelope and five other materials, none of these benefits may have any value for them.
More to the point, previously a large envelope 360 with four material bays and significantly larger work cube than the 380, to run both ASA and Nylon 12, was only $162,000. Extra material bays are essential for long unattended operation and large volume builds. In other words, the large 360 at $162,000 was a far better value than the new 380 at $170,000. Now to get the four bays, the end-user is forced into the much higher priced 450.
Similarly, an end-user could previously have purchased a large envelope 400 to run Ultem and Nylon 12 for $195,000 but the new 450 configuration is now $225,000 for that combination. Same machine; same size work envelope; 15% price increase.
If SSYS really wanted to minimize the customer investment and broaden customer choices, which they should have, they would have allowed the customer to choose which materials to include in the bundles. (See below my pro forma Fortus line configuration and pricing.)
- Note that now the minimum investment to get into this advanced technology is about $145,000 (Fortus 380) instead of previously about $102,000 (Fortus 360).
This is serious blunder in pricing and clearly a direct contradiction to the DDM imperative. SSYS should be and should have been for some time aggressively expanding the Fortus line, both in functionality and in pricing, meaning specifically putting heavy downward pressure on the minimum price points for end-users to obtain the advanced technology.
- Similarly, note the pricing gaps between the Fortus 250 and 360/380, and between the 900 and the 400/450, and the huge gap in work area between the 900 and 400/450.
The Fortus 250 is really an overpriced Dimension with upgraded software. It will run only the ABS plus material. It has a plastic removable build tray instead of the permanent and superior tool steel plate using a removal plastic build sheet secured to the plate using vacuum pump. As your reseller report very correctly points out, nylon is a key material for the D.D.M. imperative, and the 250 will not run it, nor any of the higher-end A.B.S., such as A.S.A. Therefore, the 250 cannot be considered part of the Fortus line that will be a significant part of the D.D.M. Even if it were, note that the all-in price for a 250 is about $52,000. This leaves about a $93,000 gap between it and the lowest price 380 configuration, and which gap has widened.
The price and build size gap between the 900 and 450 is simply absurd. That SSYS has not filled in their product offering here is inexplicable.
- The machine frames, basic structure and axis movement technology of the 360 and 400 large and small envelope, and the 380 and 450 are essentially identical.
For example, the 400 was in-the-field upgradable from the small envelope to the large envelope, probably in reality also the 360, although SSYS didn't offer that as an option. In other words, from a manufacturing cost standpoint, there is most likely very little difference in these six different configurations of machines. From a cost standpoint, there is most likely no need for the vast difference or increase in pricing between sizes, which pricing is therefore arbitrary.
- With the possible exception of Ultem, which requires a much higher build temperature, there is no actual hardware configuration change or cost to add materials to a machine build configuration.
Again, adding materials can be done in the field, requiring nothing more than a change of $100 nozzles. This fact is often revealed because it is a frequently asked question by prospective buyers. The realization that they are being required to purchase at $15,000, $20,000, $25,000 or $35,000 functionality that already exists is not endearing to end-users nor does it instill confidence in the integrity or fairness of SSYS and their resellers.
- SSYS service contracts are tantamount to extortion.
Apparently SSYS expects end-users to be sanguine about paying over five years, for the privilege of receiving a reasonable level and timeliness of service, an amount equal to about 50% to 70% of the initial machine base price. On its face, this is absurd, but in light of the clearly superior competing models for servicing manufacturing technology, such as the Haas model, this SSYS plan is insanity.
It must not have yet occurred to SSYS management that presenting to an end-user the proposition of providing an advance yearly retainer of up to 10% of the machine value to receive assurance of reasonable service, might prompt some questions, such as:
- Is this exorbitant fee based on SSYS experience that the machines are highly unreliable and prone to need unscheduled and costly service?
- If not, then why can't SSYS offer reasonable service on a labor and parts basis only as needed?
- If the service contract is purchased, does the end-user receive a refund or credit for unused funds? If not, why not?
Such a proposition is either an implicit admission the machines are horribly unreliable and costly to maintain, or if not, then a blatant attempt to grossly overcharge for a service that will most likely never be needed.
Even worse, there is at least one reseller, Paton Group, which requires a service contract to even show up at an end-user. If the end-user contract has lapsed due to non-payment, all arrears have to be remitted prior to Paton providing service. For a Fortus 250, this is $3,950 per year. This egregious treatment of end-users is sanctioned by SSYS because the end-user is not permitted to by-pass Paton to use a different reseller for service on a normal parts and labor basis.
Vertical and Horizontal Market Penetration
The D.D.M. imperative requires a coherent strategy to obtain maximum vertical and horizontal market penetration, both in the distribution model and in product configuration and pricing. Herein, vertical market penetration refers to the purchase of technology from the top tier manufacturers and contractors in a particular industry on down vertically into the smallest enterprises providing products to the industry, the latter often 5 to 10 person businesses. Horizontal penetration refers to the adoption of technology by the widest possible cross section of industries.
Maximum vertical and horizontal penetration requires offering the maximum choices of machines sizes, functionality, and investment and cost of ownership price points.
The recent Fortus line change does the exact opposite and is therefore incoherent relative to D.D.M.
Here would be a pro forma outline of a far superior and more coherent Fortus product offering. Further on will be provided the basis for the base price assumptions.
Note several offerings well under $100,000 for the advanced technology.
In regard to vertical market penetration, somewhat counter-intuitively, the adoption process can proceed vertically from the bottom tiers up, if the builder properly positions their product offering to appeal to the smaller enterprise in terms of price and functionality.
For example, if SSYS provided an offering of advanced Fortus system technology in the below $50,000 or $60,000 price range, with industrial materials such as nylon and A.S.A., even the most modest small enterprises or departments could afford and probably justify an initial foray into the technology.
While margins on this offering would obviously be relatively smaller, the technology could have a legitimate chance to far more quickly proliferate into enterprises it might otherwise take years to penetrate.
Once embraced inside the enterprise, it's highly probable the technology will gain internal champions and a readily discernable return on investment. The next step will be to add to the technology and most likely it will lead to higher end and higher profit machines, often in multiple quantities.
Thus the lower tier suppliers in an industry can prove out a new technology ahead of some of the bigger enterprises leading to its adoption vertically upward.
Dramatically lowering the technology price point is a proven model in manufacturing technology capital equipment, used extremely effectively for example by Haas, and others.
The powerful net effect over time of this accelerated market penetration should not be underestimated, but rather considered very seriously, even though seemingly at the net cost of short term profit margin. It must always be presumed that as-yet unidentified competitors or other market forces are lurking or assembling.
Widening and deepening of the customer base and an aggressively improving value proposition are not only substantial barriers to such future threats, they are perhaps the most powerful force for self-generation of new and repeat business.
Therefore, vertical and horizontal market penetration must be coherent, aggressive and relentless.
Economies of Scale and Selling Efficiency
- Lower prices and increased choices begin the process of maximizing market penetration.
- Increased market penetration increases unit sales.
- Increased unit sales allows for greater economies of scale that lowers the cost to build machines and produce and sell materials.
- This enables even lower machine and material prices, or even better, higher machine functionality for lower prices, which leads to further gains in market penetration.
The tipping point and maximum selling efficiency begin to occur when:
- The number and concentration of end-users, geographically and by industry, reaches a critical mass leading to spontaneous word-of-mouth and center-of-influence selling.
- SSYS has proven to end-users over time their commitment to offering an ever improving, highly customer centered value proposition.
- Repeat sales to existing customers, the most efficient of all selling, reaches 50% or more.
Fortus Machines are Overpriced and Technologically Subpar
Compared to C.N.C. Machine Tool Industry Standards
The proposition here is that SSYS should, and can, drastically reduce the cost to manufacture and selling price of the Fortus line. To support this proposition, we'll put forth and attempt to validate two premises.
Premise #1: Technologically, the Fortus machine can be compared to the CNC Vertical Machining Center [VMC]
Fortus Fused Deposition Modeling [F.D.M.] is essentially a computer numerically controlled [C.N.C.] glue gun. It operates on three numerically controlled [N.C.] axes: X,Y and Z. The extrusion head that deposits the semi-molten material from a plastic filament moves above the build platform and parallel to floor in the X and Y, and the platform moves up and down in the Z. In the process of actually depositing material, only the X and Y axis may move simultaneously.
A VMC identically has three NC controlled axis: X, Y and Z. Here however, the table moves in X and Y, parallel to the floor, and the spindle, which holds and spins a cutting tool, such as a drill or milling cutter, moves up and down in the Z axis. On the table is held a work piece, such as block of aluminum. The machine may move in all three axis simultaneously while cutting and shaping the work piece, such as when using a ball nose end mill to create complex three dimensional contours.
The electric servo motors and structural components of Fortus FDM incur or absorb virtually no forces other than the inherent friction of the moving parts. The extrusion head in proper operation touches nothing. This is reflected in the fact that the Fortus (except 900) uses a light toothed belt, such as in a vacuum cleaner, to move the extrusion head in the X and Y. Structural components are relatively light sheet metal weldments frames. The build platform is most likely about a one inch thick tool steel, hardened, annealed and ground flat.
The VMC electric servo motors and virtually all structural components incur and absorb what can be very significant forces, potentially causing substantial deflection and vibration, well beyond inherent friction. This is due to the fact that the process of metal cutting necessarily involves a highly rigid cutting tool rotating at high RPM's (5,000 to 15,000 or more) and pushed into a metal work piece with considerable force to cause what is in effect a small tearing of the metal into "chips" by the edge of the cutting tool.
This is reflected in the fact that the VMC uses high horsepower and torque electric servo motors driving highly rigid precision ball screws to move all three axes. Structural components are heavy cast iron bed, table and column.
The final part accuracy off a Fortus FDM is highly dependent on controlling the melting and depositing of the plastic material, rather than the inherent accuracy of the axis movements. SSYS does not publish or divulge such actual machine repeatability specifications. Their finished part accuracy projections are in the +/- 0.0035 to +/- 0.005" range. There is no reason to assume that SSYS engineered or builds the Fortus to be more accurate than necessary. We can guess that Fortus repeatability is in the +/- 0.0005" to +/- 0.001" range.
Metallurgy and cutting tool technology is highly sophisticated and developed, such that final part accuracy on a VMC is highly dependent on the accuracy of the axis positioning and overall rigidity of the machine and its ability to minimize the effects of cutting forces, such as vibration. A typical good quality VMC will have proven machine repeatability specifications in the range of +/- 0.0002" and typical finished part accuracy in the range of +/- 0.0005", and actually better. In other words, a typical good quality VMC can easily hold final part accuracy to better than ten times that of the Fortus, and it therefore can be presumed that the underlying accuracy of the VMC machine tool is roughly five to ten times better as well.
Other than perhaps the extrusion head technology, there is nothing in the design or construction of the Fortus that is inherently more complex or costly than a VMC. Even if the extrusion head is a highly precise and difficult mechanism to manufacture, it is certainly no more costly than a high precision VMC spindle, especially considering the latter must withstand cutting and centrifugal forces while maintaining precision over a five to ten year life cycle.
Here are the conclusions under Premise #1 relative to Fortus compared to VMC
- Both utilize very similar X,Y, and Z axis movement technology
- Fortus incurs little actual load and no cutting forces, therefore the overall construction of the machine including structural components and electric motor ratings can be and is very underweighted and under-engineered, relatively lacking in robustness
- VMC incurs substantial cutting forces and is therefore highly engineered to resist deflection and vibration, with relatively massive weight and power
- FDM accuracy is highly dependent on relatively imprecise molten plastic deposition properties and the machine accuracy itself needn't be much more precise
- VMC final part accuracy is highly dependent on the underlying machine accuracy and rigidity and is therefore at least 5 to 10 times more accurate
- There is nothing in the Fortus design or construction that would cause it to be inherently more costly to manufacture than a comparable size VMC
Premise #2: Therefore, in building a Fortus and VMC in similar work envelope sizes, the VMC should be a far more expensive machine, which then allows us to independently determine what should be the appropriate approximate build cost of a Fortus.
In other words, we can price a high quality, low cost VMC built to current CNC machine tool industry standards, comparable in work envelope size to the Fortus, both the price to the end user and the wholesale price to the reseller. If the VMC, a far more robust and accurate machine tool, can be built and sold for those prices, then so can the Fortus.
Haas Automation is by far the VMC industry leader in market share and broad market acceptance, in large part by virtue of their superior price-to-functionality value proposition as well as their uniquely broad and comprehension product line offering. The Haas VMC product line is in many respects an excellent model to be emulated by Stratasys if possible. Moreover, the following comparisons are all the more relevant because Haas VMC's are manufactured in California and the Fortus in Minnesota. In other words each builder has very comparable regulatory, tax, and labor costs.
Haas VMC vs. Stratasys Fortus Comparison
This indicates the Fortus line is essentially 200% to 300% overpriced, versus comparable size VMC's, that are far more robust and accurate.
The Haas products are sold with far smaller margins than the Fortus. The Mini Mill and Mini Mill2 base price are less 15% to the reseller and the VF6 less 17.5%. The Fortus are 30% discount to the reseller.
To prevent an Stratasys reseller insurrection, let us add back 30% margin, 15% for SSYS and 15% for the reseller (in addition to the 15% and 17.5% already in the base price for the reseller). That will net the Stratasys reseller at least their customary 30%. Thus we can arrive at an adjusted Fortus base price.
In other words, the base assumption is that properly Stratasys can build a Fortus 450 for the same, or actually lower, underlying manufacturing cost with which Haas can build a Mini Mill2. Haas is willing to accept a net price from their dealer of $34,846 ($40,995 less 15%). Keep in mind also, that Haas accepts this price with no possibility of an ongoing consumable material revenue stream or any other consumable revenue stream.
Under the above adjusted pricing, Stratasys will accept a net price of $37,305 ($53,294 less 30%).
Thus even at what of course would seem to be absolutely shockingly low Fortus prices, SSYS nets 7% to 10% more than Haas for a comparable machine and Stratasys dealers are netting 120% to 160% more than Haas dealers. All this with a consumable material annuity guaranteed with every Fortus sale!!!!
From this adjusted price were derived the base price assumptions for the earlier pro forma Fortus product line pricing. We'll insert the new adjusted Fortus base price back into the actual current pricing matrix from earlier to arrive at the following to show the effect on current bundle pricing.
These adjusted prices are likely approximately where market forces over time will force end-user pricing and thus corresponding manufacturing costs and overall distribution model cost structure. Further, these are target prices that Stratasys should now be aggressively pursuing.
Even at these drastically lower prices, the Fortus machines are likely still overpriced and the dealer margin at 30% is still is quite fat, especially considering the $7,000 to $11,000 still included for installation and training.
In the Haas Factory Outlet model, dealers work on an all-in net gross profit margin on new machine sales of about 17%. Included in that, the dealer is expected to provide service labor for the first twelve month Haas warranty, normally installation, and many dealers provide training as well, all at no addition charge to the end-user above the machine base price and accessories. Haas dealers would no doubt wet themselves at the prospect of the luxury of 30% margins.
This is the brutal reality of the end-user expectations for pricing and service set by Haas and others in the DDM market competitive landscape that SSYS claims they wish to significantly penetrate. There is simply very little evidence from SSYS they are making correct and coherent decisions regarding the implementation of their DDM imperative, and an abundance of evidence to the contrary.
Thus the inescapable conclusion is that, regarding their DDM imperative, SSYS management:
- Are not actually serious; it's just an impressive sounding talking point on quarterly conference calls, or…
- Are wildly delusional, arrogant or hubristic, or…
- Haven't clearly analyzed the road ahead nor do they have the requisite experience to fully understand what is actually required for effective and widespread DDM implementation
Should SSYS to decide to seriously embark on an effective and coherent DDM plan, then the Fortus line must be reconfigured, expanded and re-priced as a top priority. In that process, there is no reason not to bring the machine engineering and design of the entire line much closer to CNC industry standards. I believe this has probably already been done with the Fortus 900, which can truly be considered a legitimate machine tool. Although, as I've said, SSYS steadfastly refuses to divulge pertinent information about machine construction and factory standards for positioning, repeatability and other geometric tolerances.
Regarding Haas Automation and Haas Factory Outlet, the information and comparisons contained herein represent the tiniest sliver of the proverbial tip-of-the-iceberg in describing the complete set of principles and practices that comprise their paradigm distribution model.
The SSYS errors and missteps critiqued here are only the most obvious and fundamental; the much more in-depth and finer points of discussion on manufacturing technology capital equipment distribution are well beyond the scope of this report. SSYS would be well advised to study carefully the Haas model and begin incremental implementation of it as soon as possible.
One of the great philosophers of the 20th century famously quipped:
"You can observe a lot just by watching."
The proper manufacturing and distribution model to be employed by SSYS to rapidly accomplish their DDM imperative already exists, it is proven, and it is operating in clear view and in broad daylight.
Here is what a properly constructed manufacturing technology capital equipment product offering looks like. Haas maintains a dominant 60% to 70% market share in vertical machining centers in most U.S. markets.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.