Using Offshore Inputs to Improve Your Competitive Position in the U.S.
With the proper application of outsourcing you can increase your revenues, profits and size of your operations here, not simply send your work offshore, or worse, go out of business because you’re no longer competitive.
Considering the severe competitive pressure from low-cost countries, U.S. moldmakers are constantly searching for ways to successfully respond to the competitive challenges while maintaining profitability and adequate capital generation to finance growth.
Successful approaches incorporate productivity improvements through production processes, automation, new design approaches including reduced component counts through integrated components, new materials and, of course, outsourcing.
I’m pleased to share some of the lessons I’ve learned from outsourcing hundreds of precision injection molds both locally here in the Chicago area (1986-1999) and from Asia (1993-1999), and from the last seven years of providing consulting, quality and engineering services to dozens of companies that are outsourcing injection molds and die cast dies worldwide.
Outsourcing refers to anything not made and/or processes not performed in-house, and the sources can be located anywhere from next door to halfway around the world. Offshoring formerly meant anything from another country although recently “nearshoring” has become the term for sourcing from Mexico or Canada while offshoring has come to designate source countries farther away, while “onshoring” designates sources located in the U.S.
The further the source of the component, product or service is the higher the risks to project quality and schedules as well as to any savings potential.
It’s Not All or Nothing
Think in three dimensions, not two. Apply combinations of outsourcing in a matrix in order to find what works best in your market and on a per project basis.
Outsourcing options can include any combination of:
- Complete programs of multiple molds.
- Some of the molds from multiple mold projects.
- Some complete molds and some components for others.
- Components of molds.
- Specialized processing of compon-ents where you don’t have the capability in-house.
A single project of 10 molds might have three molds being built in China, inserts for three others being built in Thailand, bases for the inserts being made in Illinois, hot sections from Canada and four molds being built in your own shop. Recognize the pattern? This is how many things from automobiles to refrigerators are built, so why not molds?
Consider the logistical elements carefully. Much of the savings for entire molds sourced offshore can be consumed by air freight if ocean freight is too slow, mainly due to the weight of the mold bases. If ocean freight is used then potential port delays have to be considered in the timeline, frequently adding as much as three weeks to deliveries without notice. Inserts, slides and other components built offshore can ship by air at relatively low cost while the related mold bases can easily be built here at low cost.
This all having been said, starting in 1993 I sourced complex four- and eight-cavity/two to four slide molds in Singapore, had hot sections built in Canada and shipped to Singapore for fitting and sampling, and then had the complete molds shipped to Chicago for a net savings of 30 percent and more each. Overall we only had to offshore 20 percent of our molds to be competitive, the rest were built locally.
The Value and Risk Propositions
There are three primary reasons to outsource:
- Lower the cost of the tool or multiple tool projects.
- Augment internal capacity and related scalability of operations without additional capital expenditures.
- Avoid capital investments for highly specialized equipment that wouldn’t be fully utilized if installed in your facility.
Once you’re willing and able to outsource components and molds, the costs and related considerations of ROI relative to installed capacity compared to the outsource option will most likely change your capital deployment profile. Investments can then be concentrated into the highest possible areas of return and new revenues built around the expanded capabilities and lower selling price without sacrificing profits.
Most importantly, you can regain and grow market share through your improved cost/value proposition.
Intellectual Property Issues
Many companies say they won’t outsource due to IP theft. Concerns about intellectual property (IP) are genuine and should be considered, but let’s be realistic about the level of risk.
First of all, unless you’re building exotic molds with proprietary technology in them the shops in China are already up to speed with the latest in mold making techniques and don’t need to steal any-thing from you. If you’re building exotic molds then you don’t want to outsource them anywhere, whether it’s China or Ohio. Outsource other projects but not these.
The idea that “when they build one mold for you they’ll build a duplicate” is basically an urban myth (“they” are the Chinese these days, of course, but it was the Japanese in the ‘70s and ‘80s). Simply put, they don’t need your mold project to duplicate your mold; all they need is a part sample, drawing or photo.
I’ve visited many mold shops in China, Hong Kong and Singapore. They have everything we have here. I’ve also visited many U.S. shops and know that some of them have pirated technology from their customers. It doesn’t matter where your supplier is, it matters who they are. Good suppliers will protect your interests and your business relationship wherever they’re located, while crooks are located in every country—including China and the U.S.—and may even be down the street from you.
Remember; unless you’re also a molding shop you are an “outsource” for somebody’s molds. Don’t make the mistake of ignoring the opportunities of outsourcing to strengthen your company based on a myth.
Selecting a Supplier
This is the true key to success. Good supplier, good results. Bad supplier, bad results. It is that simple. Virtually all of the horror stories I’ve encountered about poor workmanship, difficult communications and needed rework for molds to run have been traced back to the supplier selection process.
Whether the supplier is a moldmaker in China who will build entire molds or components for you or a mold base builder in the next town, there’s no working around a bad supplier. Take the time to build a relationship with the supplier, like you do from the other side of the table with your own customers. As overused as the concept of “relationship” is we still see it as the number one failure mode among our clients and the case studies I’ve researched.
Visit their facility and audit their processes, create a detailed project management profile that includes all workmanship standards and expectations and ensure that they agree. Create a communications protocol that both parties can and will conform to, which is especially critical if you’re working across many time zones.
Most of all create an alliance rather than simply a purchasing relationship. It doesn’t cost any more, but it will significantly improve the results. Just buying a mold or some inserts now and then leaves the supplier with little to lose if there are problems. Having an alliance partner means that every outcome is part of a greater flow of business and the future success of both parties becomes linked on every project. This is as big an incentive for your supplier as it is for you with your best “alliance” customers.
Calculating Total Cost
This is another area where companies fail to do their homework and then fail to realize their outsourcing objectives, particularly cost objectives. Done correctly you’ll create a balance of capacity, capital investment and internal capabilities at the lowest possible cost. Done incorrectly you’ll be one of the many who only break even after all the effort or actually increase their costs (and then go on to pronounce loudly that “outsourcing doesn’t work.”).
Remember that the leadtimes and delivery risks increase with distance from your supplier. You have added cost elements of communications, design, sampling, logistics, customs and related broker fees, tariffs, inventories, and related space and capital time costs. Generally speaking, the closest options geographically are always preferred and you should search close first and then expand your search range incrementally until you reach the intersection of overall cost efficiency with acceptable risk.
Beware of Strategic Overshoot, a term that I apply to the migration of sourcing to distant suppliers based on fads or myths (such as “everything is cheapest in China,” which is already no longer true) rather than the rational evaluation of a valid decision matrix. Optimum sourcing solutions can very often be found much closer to home than you might think at the outset.
Managing Quality at a Distance
Beware of sampling issues. When I sourced our first mold from Singapore in 1993 we received beautiful samples, but when the mold arrived it wasn’t possible to duplicate them and adjustments to the steel were required for the mold to perform in our press.
After careful investigation I realized that we had failed to control the sampling process. Our supplier was using different machine configurations than we were (tonnage, barrel size and temperature profile, screw geometry, water temperature and flow rate, dryer size and residence time, etc.) and they had fine tuned the mold to their process during sampling.
After correcting this omission and specifying every detail of the sampling the many molds that followed went right into our presses, matched the original samples and went into production with little or no adjustment because they were fine-tuned for our process.
A quality tool often missed is the use of third-party quality service providers. By using a third-party quality service provider you can have an engineer on site virtually anywhere in the world as needed on a per-day cost basis, to represent your quality interests at a fraction of the cost of flying your staff there. These firms also provide rigorous supplier capability audits—also at a fraction of the cost for you to travel to a distant source—allowing you to accelerate and improve the supplier selection process itself.
You also can use third-party services for periodic spot checks against the Gantt chart, dimensional verification of components at key points of the build to identify issues in real time and minimize rework, first article evaluations, and, of course, to be present at the sampling. These services can save you considerable risk, time and money during the course of any project whether it’s across the country or around the world.
Making It All Work
There are many other details to con-sider, following are a few more examples. I learned to specify every piece of metal in the mold—from base to leader pins to wear plates and inserts—and to specify the marking of each piece in the design.
In fact, I quickly learned to add far more detail to the mold designs, including fully detailing pin plates, backing plate screw patterns, dowels, PKOs (we used positive returns with imperial threads so metric adapters had to be made for sampling over there), parting line cutouts, o-ring pockets, wear plates, and all screw positions and threads, along with calling out workmanship standards that we take for granted here—such as marking all inserts with location, steel type and hardness and stoning all exposed edges to reduce laceration risks for setup techs and operators. Do not assume anything about such details when outsourcing, especially when going offshore.
You won’t be a global sourcing expert after reading this article or any other, but you will have a new understanding of the process. One key element of success is to either hire a global sourcing expert or retain a consultant with the skills you need to develop your learning curve.
For many shop owners the interna-tional specialist is the first hire they’ll make who can do a job that the owners don’t understand. It’s no longer just about cutting steel, the world has changed and new competencies are needed. It’s time to not only catch up but to get ahead of the market, and that’s very difficult to do if you’re busy reinventing the wheel.
With the proper application of outsourcing you’ll be able to increase your revenues, increase your profits and increase the size of your operations here, not simply send your work offshore, or worse, go out of business because you’re no longer competitive.
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