Every pivotal change in the modus operandi of producing goods has created a similar effect- Resulting in what most of us refer to as an ‘Industrial Revolution.’ The first came in the late 18th century, as we pivoted from making goods by hand to producing textiles with machines, powering our engines with steam and coal instead of wood and bio-fuels, and created new iron production processes to fabricate machine tools.

The Second Industrial Revolution came at the end of the 19th Century, as the advancements made in the first revolution allowed the widespread adoption of telegraph and railroad networks and resulted in the overall expansion of electricity, petroleum, and steel. This ‘Technological Revolution’ enabled the mass dispersion of technologies, people, and ideas.

Technologies like 3D printing, additive manufacturing, and the overall digitization of manufacturing have begun to usher in a Third Industrial Revolution and like the two that have come before, it will influence almost every aspect of daily life in some way.

3D Printing, put simply, is the process of creating an object by designing it on a computer and then using a 3D printer to build up sequential layers of material. The key to this new process of manufacturing is it will allow customization and flexibility to be introduced into mass production in an inexpensive way. Whereas the first Industrial Revolution created the machines that made up the modern assembly line as we know it: Each machine being created for a specific task with specific materials and the overall creation of identical products. This revolution will allow a high level of customization and flexibility for each thing it creates. In traditional manufacturing, it’s typically cost-prohibitive to produce small batch runs due to tooling costs. 3D printing brings the cost of tooling down to almost zero, allowing for small production runs to be cost-effective.

One of the biggest accounting changes created as a result of the First Industrial Revolution was in the need for new accounting processes to be developed. For the first time, industries needed the ability to account for the costs associated with each new step or process in the production line. This ushered in an unprecedented demand for accountants and an overall need to organize the profession. The current accounting processes of the time were insufficient and new streamlined systems were quickly created.

As one of the most trusted CPA firms in the Bay Area, we’ve highlighted how this digitized revolution in mechanization will affect both manufacturing and our clients’ accounting needs:

  • The Effect on Cost Accounting and Modeling: There is no doubt that 3D printing will significantly change the cost of production. Cost accounting will need to adapt and take into consideration the new efficiency of the digital production process in order to effectively advise management on the most appropriate course of action for future operations.
  • 3D Printing Can Change the Geography of Supply Chains: The ability to simply print a material or tool which you cannot acquire locally will negate the need to import it from the nearest locale.
  • Customization and the Rise of Intricate One-offs: 3D printing allows for the mass production of customized shapes and products. This customization and flexibility to meet shifting changes in demand will certainly affect supply chains and how manufacturers calculate stock supplies and cost-per-unit.
  • Production on a Smaller Scale: 3D printing techniques allow for the creation of infinitely smaller objects and parts. Some of the world’s smallest 3D printed parts are no larger than the width of a human hair. This scale is previously unheard of the in the manufacturing world and could usher in new demand for the production of intricate parts.
  • The Materials are Changing: Manufacturing production as we have known it consists of the machinery on the production line being designed to produce using a specific material. 3D Printing changes this dynamic with the ability to print a variety of materials, allowing manufacturers to use a different material in place of the usual should the cost, availability, or desire of a material change. In addition to flexibility, 3D printing will also have an impact on waste. The additive manufacturing process of 3D printing is in stark contrast to traditional manufacturing: Instead of cutting away from a material (which produces waste) we will only add on what is needed.
  • Blasting Away Barriers to Entry: with just an internet connection, engineers, designers, and the like can be instantly connected to each other and to access a never-ending wealth of information at their fingertips.
  • Changing of the Modern Production Line: With the rise of 3D printing technology, production lines of the future will not require the same manual labor intensive tasks of the past but will require a different skillset and oftentimes a specialized education.
  • Change in Labor Costs and Geographies: For the last decade, cheap labor in Asia has influenced the outsourcing of production. Due to a number of labor changes in China and new technologies like 3D printing, it is expected that production will begin to shift elsewhere. 3D printing is one of many factors allowing the United States to become a country with a workforce suited for this new manufacturing future. Manufacturers will be forced to not only assess labor costs but benefits like the ability to have the final product in close proximity to the engineer or designer for a new level of quality control.
  • Protection from Accounting Fraud: In the first industrial revolution, accounting was impacted by the rise of accounting fraud. Companies soon manipulated their numbers and inflated profits in order to entice new investors, and shield their profits from taxing authorities. These factors created the rise of audits as a safeguard.
  • Legislation & Technology: As with the first and second industrial revolutions, the government tends to put its weight behind those technologies and processes it deems to be the future. This could come in the form of subsidies, tax incentives, or favorable legislation.
  • New Wealth: One of the most revolutionary factors of the first industrial revolution was the unprecedented growth of wealth and per capita income in a short span of time.  3D Manufacturing has the potential to once again redistribute wealth and user in a new era of wealth management.

This is just the tip of the iceberg- As every revolution has proved, it’s hard to pinpoint exactly where this leap forward will ultimately take us. However, SLD prides itself on staying ahead of the curve and quickly adapting to the changes in the manufacturing industry.  If you want further information on how any of these changes could affect you, please contact one of our trusted advisors.

 

Sources:

http://www.economist.com/node/21553017

https://www.bcg.com/documents/file84471.pdf

https://nephist.wordpress.com/2014/03/12/accounting-for-deception-in-the-industrial-revolution/

https://www.ifac.org/global-knowledge-gateway/performance-financial-management/discussion/3d-printing-technology-shifts

Cost accounting during the industrial revolution. the present state of historical knowledge

http://www.cpapracticeadvisor.com/blog/12097394/five-ways-3-d-printing-will-impact-the-accounting-profession