The Problem Isnt China
The largest problem today facing the tool, die and mold industry is that it has no means to challenge the value of offshore sourcing. There is no internationally comparable data available to assess the relative competitiveness of the industry.
In this absence, purchasing decisions are driven by impressions, perceptions and stereotypes, explained Jay Baron, president and CEO of the Ann Arbor-based Center for Automotive Research. Baron’s group was largely responsible for the creation of the state’s Tool and Die Recovery Zones and the collaborative model that the tax-free incentives promote.
Among other things, he hopes a new CAR initiative, the Program for Automotive Renaissance in Tooling, will address the macroeconomic issues the coalitions do not. First and foremost: the dysfunctional relationship between tool and die suppliers and their historic customer base.
“There is a great deal of frustration on the customer side,” Baron said. “This industry does not have a good reputation; we need to clean that up.”
In part, the opposite is true. Domestic tooling has achieved significant productivity increases, and at its best, is a knowledge-based industry many generations ahead of other parts of the world.
There are, however, significant opportunities for cost reduction. Whether sourcing to low-cost countries is one of those is a matter of fierce debate.
A recent Michigan Economic Development Corp. report determined small to medium-sized tool shops have costs 25 percent to 30 percent higher than low-cost country sources, the equivalent of a more than 40 percent productivity increase.
“The problem is the original number is perverted to begin with,” said Randall Schaefer, a Hastings-based manufacturing consultant. A longtime veteran of tool purchasing, Schaefer has managed purchasing for both automotive OEMs and Tier 1 suppliers. He currently is an instructor for The American
“Purchasing has been traditionally measured by cut the cost, cut the cost, cut the cost,” he said. “And we’ll worry about quality later. That’s understood. So you have a history of tooling prices that are artificially low.”
Domestic suppliers originally drove this model through misleading bids, Schaefer said. In a recent CAR survey, Baron found an average spread of 90 percent between bids from five reputable domestic shops.
As in all competitive industries, a tooling company will sacrifice margin to earn a contract. But in many cases, companies do so with the understanding that it will not be their best work. The product will require a larger number of engineering changes for launch, padding the supplier’s bill, and likely increased maintenance throughout its lifecycle.
“The tooling didn’t actually cost that much less,” Schaefer said. “The margin of difference was all sent downstream.”
“If you go from a $300 million welding line to a $150 million one, you will get a different performance,”
“The problem isn’t that you should buy cheaper tools; you should buy as cheap a tool as you possibly can that will get the job done,” he said. “The problem comes when the cheaper tool has an impact on manufacturing, and no one is held accountable for that. There are no consequences to the purchasing people who bought the cheaper tool.”
And it isn’t that purchasing agents are unaware of these issues. One die shop reported a conversation last month with a major
Tooling companies believe such scenarios are the primary driver for cost differences found in sources from
“They’re trying to minimize cost,” said Rocky Johnston, president of Bessey Tool & Die in
There is no data to represent the costs associated with launching Chinese tools, but Baron, an advocate for offshore partnerships, believes the quality issue is epidemic. Some Chinese companies will ship a tool as soon as it passes visual inspection, with no tryout.
“The reality is you find very good shops that can create very good dies in
Worse yet, offshore sources are commonly held to different standards than domestic sources. At sometimes half the cost, buyers believe they can happily absorb higher back-end costs.
“When they get cheap stuff from
This is perhaps the largest difference between Japanese automakers and the Big 3, Baron said. Japanese tooling purchasers generally come from engineering backgrounds, whereas
Muir has noticed that those companies that purchase through a strategic partner arrangement, as do most Japanese firms, see tremendous cost savings. Of two large fascia molds Paragon quoted for domestic customers in 2005, the buyer who treated the purchase as a commodity ended up paying 30 percent more in total cost — $300,000 — mostly in engineering and maintenance.
Andy Harder, principal of NDI Sales and Consulting, a Holland marketing firm working with the Michigan Tooling Group coalition, believes Asia will be incredibly important to the local tooling industry, but for a different reason.
The MTG is currently in the process of exporting tools to Indian manufacturers. Some of the companies Harder is working with had never seen a progressive die. All the tooling was done by hand, with little or no access to automated or repeatable production. Through the
“We all assume that because it’s