All Aboard The Orient Express

April 21, 2006
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At the behest of their customers, many West Michigan tool and die makers have embraced the low-cost Asian suppliers once thought to be their industry’s greatest threat.

“Some of our competitors are thinking that lying down in front of the train is going to stop it, but it’s not,” said Jay Groendyke, president and CEO of Synergis Technologies Group. “We don’t see China as an enemy at all. We’ve shifted our paradigm to see how we can make them an opportunity and not a threat.”

The Grand Rapids-based parent company of Capitol Concept & Engineering, Dieline, Dievelopment, Diecraft and Dielink, Synergis has formed a strategic alliance with three of China’s largest tool and die manufacturers. Two years in the making, the consortium grants an exclusive relationship with The Die Manufacturing Co., a die maker in the northeastern city of Changchun; Sichuan Chengfei Integration Technology Corp., a mold maker in the southwestern city of Chengdu; and BYD Mould Co., a tool, die and mold company in Beijing.

The four companies each own 25 percent of Synergis China Automotive Die Group Ltd., a company launched to manage the consortium. Through this, Synergis will be able to place a large portion of its work in China, and the offshore companies earn access to the U.S. market.

The consortium is the latest and highest profile example of a new business model rapidly gaining acceptance in the tooling industry.

“It’s a need; you can’t sell somebody a black car if they want white,” said Pat Quinlan, president of Precise Engineering in Lowell. “Our customers don’t care if they buy it offshore; they just want that price.”

Precise has been in Korea for two years, and this year expanded to China. A portion of nearly all the company’s work is done in Asia, distributed to suppliers by a project manager in each country.

Although only engineering, assembly and tryout are done in Lowell for most projects, Quinlan’s company swelled to 50 employees this year. The machines are running constantly, sales volume has skyrocketed, and Precise is attracting work that it could never before do cost-efficiently, such as a recent die package for a furniture manufacturer.

“We’ve been on a dead run for a year and a half,” Quinlan said.

Quinlan introduced the concept to the 17-member United Tooling Coalition, of which Precise is a founding member. Several UTC companies have been investigating the program, with one placing its first order this month. Other members have parallel efforts: Portage-based Accu-Mold launched a joint venture in China two years ago.

At the 250-employee Synergis, Groendyke expects similar results. The company hopes to see cost savings of 10 percent to 30 percent. In turn, cheaper pricing and a 2,500-worker labor capacity should generate disproportionate sales growth.

“We are moving work to China, but not jobs,” Groendyke said. “As this ramps up over the next year or two, we will probably increase our size to deal with that extra capacity.”

Early results support his optimism. The company outsourced a major set of tooling to China last year, and was impressed by its vendors’ “excellent” quality, communication, service and delivery. Synergis has also outsourced some low-level design work to India

Jay Baron, president and CEO of the Center for Automotive Research in Ann Arbor, believes such models are the industry’s best hope for survival. Arguably the nation’s foremost tool and die expert, Baron led the creation of the first coalitions three years ago in a desperate response to an industry-wide crisis.

Between 1997 and 2001, the import of tool and die from China and Korea rose 191 percent and 248 percent, respectively, according to the International Trade Commission. Combined with an overall economic downturn and a shortage of new vehicle launches, the emerging markets created an estimated 25 percent to 40 percent global overcapacity, according to The Right Place Inc.

From 2000-2002, West Michigan firms reported sales reductions of 20 percent to 40 percent, coupled with radically reduced lead times and price reductions of up to 20 percent. Baron estimates that Michigan lost a third of the industry during that time.

“Why are we going to China? Why are we trying to commit suicide here?” Baron asked, rhetorically. “Because these pressures continue: There is still excess capacity, there is still price pressure. The truth is they can produce some tools much cheaper.”

According to Baron, the market reality is not that Asian tool prices are cheap, but that Michigan prices are expensive.

“When we started this three years ago, it was evident that our tool costs were not competitive with the rest of the world,” he said. “Our customers had figured this out. They were saying, ‘We want that cost. If you don’t go to China to get them, we’ll do it without you.’”

The first to respond to that message was Japanese tool maker Fuji Die Co. When its customers began asking for “the China price,” Fuji collected packages of tools and distributed the work throughout Asia. The practice produced a much lower price for the complete package, which Fuji then managed.

“It was, ‘We want Chinese prices, but we want your name on them,’” Baron said. “That seemed unreasonable at the time, but now that it’s clear OEMs can go directly there, our companies have to work with them.”

Baron proposes that all U.S. companies consider adapting the Fuji model, as Synergis, Precise and others have done. Outsource the labor-intensive, ubiquitous projects to the low-cost labor markets, he said, while U.S. companies concentrate on higher level tasks and projects that require quick delivery and advanced tooling.

“Our customers are telling us they want China prices, but they don’t trust the Chinese,” he said. “They want local management of those tools. Quite frankly, they enjoy close relationships with their domestic tool sources and want to maintain that. This is the only way that can happen.”

In this model, OEMs can achieve the prices they desire, but maintain the certainty of communication and quality a local source provides.

“They want the price, but the communication and culture there is so different, you really need someone on the ground,” said Scott Hogle, engineering manager for Ampro Tool in Grand Rapids

An upstart division of Ampro Tech, Ampro Tool was launched to take advantage of the company’s decade of experience with Taiwan suppliers.

“Eventually, it’s good for America. It has made us that much more competitive,” he said. “Domestic tool prices have plummeted … it’s leveled the playing field.”

According to Baron, the tooling industry is merely following the same progression of most sectors in today’s economy. There is a redistribution of work and employment, with less work occurring in the shop and more in design and management.

“The tool and die maker is slowly becoming obsolete,” he said. “The new tooling model is much more technical, more analytical. They’re becoming knowledge workers.”    

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