The Moldmaker's Responsibility to Change
Become aware that times have truly changed and then design a business model that involves you in the process.
Even though the phrase the perfect storm is cliché, it fits the pain that afflicts this industry. If we really wish to save American manufacturing, it starts with the recognition of the facts and the development of a game plan to use the facts as a strategic weapon.
In the Beginning
The typical business model of the past was the customer owned the tool and paid a molder to get the tool built. Payment terms were 33 percent upon order, 33 percent upon design approval and 33 percent upon delivery. Banks would lend on tooling receivables, and in some cases on construction in progress. But then again, tool build gestation was 12 weeks for tool design and 24 weeks for tool build. Each cavity was uniquely fitted in the pockets and tool designs were often adjusted on the floor by the moldmaker. Several weeks after the tool was delivered, the final adjusted designs were delivered to the customer (in most instances).
For many molders the tool build represented 10 percent of total revenues, and they enjoyed a 25 to 30 percent profit margin on the sale of the tool. While many molders also had moldmaking capabilities, the truth is, less than 10 percent of the required mold builds were actually built internally. Most molds were built by small moldmaking shops of about 10 to 30 people with one third being highly trained and experienced craftsmen. Most of these moldmakers were apprentice trained and gained most of their knowledge through the experience of building molds.
Then Came Productivity
Faster and more agile machines were built that allowed tools to be cut in less time, with less EDM and benching. Cutting path programs were developed that allowed a machinist to have control over the workstation. Quick release chucks, laser probes, magnetic toolholders and other ancillary equipment allowed for faster and more reliable setups. Molds started to be designed using solid modeling. This allowed for reliable designs that required fewer floor adjustments by the moldmaker. In addition, the software became more intelligent and predicted interference, draft requirements, resin flow, shrink and cooling patterns.
Then Came a Smarter Customer
Some also would say more ruthless, but the fact remains that the customer started taking control of the issues of the mold build. Customers who have tools at multiple molders have started to select resins more strategically to limit the variability of shrink, and thus the tools become more interchangeable. The customer also started consolidating the number of parts in the design function—limiting the number of tools required to be built.
Then Came a More Fickle Consumer
Molds were designed to withstand most nuclear attacks. Go into an established molder or service parts molder and they will have 25-year-old molds still running. These molds more than paid for themselves 15 years ago. Even the most critical customer will agree that a mold looks cheap after 25 years of use. But what about after three years, 18 months, or worse yet six months? Most car interiors are redesigned every three years, most consumer electronics last only 18 months before they are obsolete, and most computer equipment lasts only six months. Even an inexpensive mold looks expensive to the customer if they have to create new tools every six months. Of course, they would never consider changing designs this frequently if molds still took 24 to 36 weeks to produce.
Then Came the Global Competition
Ah … the current scapegoat in most traditionalists' eyes. Yet it is the customer eager to take advantage of the several benefits of sourcing tools to cheaper countries—much lower wage rate (total labor in most tool shops is approximately 25 percent according to the Plante & Moran North American Plastics Industry Study), less legacy costs of fringe benefits, insurance, taxes and regulations (see NAM's analysis on "How Structural Costs Imposed on U.S. Manufacturers Harm Workers and Threaten Com-petitiveness" at www.nam.org), and when the host country, such as China, supports the economic development, the shops could be using the latest equipment with trained workers. Of course, there are disadvantages—legal protection of intellectual property, cultural differences, treasury restrictions, productivity/knowledge of workforce, infrastructure support, and the largest being 10,000 miles of communication delays, oversight limitations and freight.
The Customer Responds with a Change to the Commercial Terms
The need to regenerate new molds every 18 months or so is very expensive to the customer. The customer's first response to the faster mold build cycle was to limit the commercial terms with the molder and moldmaker. In the automotive industry, the molder (in theory) is not to make any profit on the mold build. Since this is the customer's property, the customer is demanding a complete pass through of the cost with no markup to the customer from the molder. In addition, the automotive customer is unwilling to pay for the tool until it is in place and operating as designed with all the other production equipment and producing parts. This approval is called Production Part Approval Process (PPAP). Unfortunately, most molders do not have any influence on the PPAP date after they release the tool to the molder. All of this is in addition to the fact that banks are generally avoiding any lending on tooling receivables or construction in progress—the moldmaker stands alone in financing the tool.
The Perfect Storm
Put all of these factors together over a 10 year span and you have the conditions for the perfect storm. Many wonder how many casualties this industry has suffered during this storm. More than 10 percent of the moldmakers that participated in the Plante & Moran North American Plastics Industry Study prior to 2002 are no longer operating. More business will go under unless the industry recognizes the need to change. Certainly, there is time to lament the loss of many good businesses, but the industry owes itself and our country the responsibility to change.
Current Conditions Create Poor Positions
Here is lesson one: unless you have a role in the PPAP process, you have no business accepting payment terms that are out of your control. Continuing to only have PPAP as the criteria for payment is Russian roulette, where death is inevitable the longer you play the game. There are horror stories of PPAPs being delayed more than 18 months while the automation is fine-tuned. In the meantime, 12 tooling contracts that were accepted by the customer are not paid pending this approval; yet, the Tier I company was producing parts for the automotive customer and making money on the part production. It's okay to accept PPAP as an approval process as long as you also demand a backup date. The backup date could be three months or more after the planned PPAP date. This at least gives you some leverage with the customer should you need it.
A longer term strategy would be to put yourself in the PPAP process by coordinating the various tooling and production issues of the completed part/assembly. This expanded view of the role of the moldmaker fits well with the customers revised visions of what is value add. No longer is it cutting metal, or even in mold building, but rather in speed-to-market and/or integration of a more complicated manufacturing process. This will require new skills and new relationships with other ancillary decorating and assembly equipment, robotics, fixture and gauge manufacturers; and therefore, is not meant for everyone.
Some moldmakers have been presented with Related Fixed Cost agreements. In this agreement, the customer has the moldmaker agree to handle all of the costs to produce the mold—including any change orders. The philosophy is to have the moldmaker anticipate changes that may occur and consider them in the designing process. The cost of any change orders are the responsibility of the moldmaker. Do not accept design responsibility without having design approval authority or ownership. “Related Fixed Cost” agreements need to be narrowed to only accept responsibility for the process that makes the tool—not the process that makes the part. Changing the material shrink for a new resin specification or fit with other parts outside of the moldmaker's control should not be the moldmaker's responsibility. Perhaps there is an alternative arrangement where the moldmaker is given an incent-ive to eliminate change orders. A bonus for good anticipatory design? Don't hold your breath.
Another variation of the “Related Fixed Cost” agreement is the Part to Print agreement that warranties cycle times, cosmetic requirements and/or dimensional integrity. There are a few instances where the customer has back-charged the moldmaker for problems encountered on the floor. Do not warranty production levels or production capabilities without putting yourself into the process. As you well know, there are many other issues that impact cycle time—including resin, equipment and worker quality; cosmetic issues are subjective; and dimensional integrity must be based on adequate processing windows/condition and specific material identification.
“Part to print” agreements could work in select situations where the moldmaker has a role setting the molder's processing windows, but this relationship is best suited where the moldmaker has an ongoing partnership role with the molder. One such role would be for the moldmaker to perform ongoing aggressive tool maintenance for the molder, but also participate in the molder's continuous productivity improvement process. The mold maintenance contracts would be reduced by a negotiated amount of the desired productivity goals. The moldmaker is then encouraged to enhance the tools and assist the molder manage the processing windows to meet the productivity targets. Any savings over the target productivity levels and any tool enhancement costs would be shared 50/50 between the moldmaker and the molder. Obviously, tightly defined productivity levels along with a high level of trust are required for this scenario to work.
Our Circle of Influence
We could try to educate the customer and demand fair trade (a good role for trade associations and politicians), but look at what's in our circle of influence first. You will not survive if you need to have a level playing field before you can make money. There are opportunities to thrive as a toolmaker, but only with the awareness that the times have changed. Consider designing a business model that involves you in the process or eliminates the need to participate in the process. Are you willing?
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