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.”

    Even in Grand Rapids, often thought of as the tooling capital of the world, many customers view it as a craft industry with incessantly “moody” pricing and delivery. The perception, Baron asserts, is that suppliers resist modern manufacturing paradigms, especially when it comes to cost cutting and globalization.

    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 Production and Inventory Control Society and a columnist for its monthly magazine.

    “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.”

    John Cleveland, vice president of automotive consulting firm IRN Inc. in Grand Rapids, explained that a lack of lifecycle cost management has plagued manufacturing for years. He pointed to the recalls and launch problems associated with Ford Motor Co.’s capital goods budget cuts in 2000.

    “If you go from a $300 million welding line to a $150 million one, you will get a different performance,” Cleveland said. “This is not an issue specific to tooling. You have to look at the total value package whenever you buy any product.”

    Cleveland recently surveyed purchasing agents from 10 local furniture and automotive manufacturers, curious if any had a system in place to reward or penalize suppliers for the impact a tool has on production. None did.

    “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 Grand Rapids furniture maker. The buyer wanted the company to replace a die’s punch and buttons. Upon being told the company could do it easily itself for a fourth of the price, the buyer persisted, stating that doing so would come from a different budget.

    Tooling companies believe such scenarios are the primary driver for cost differences found in sources from China, Korea and Taiwan. Virtually every local tool company has a story about a Chinese tool it was called in to fix.

    “They’re trying to minimize cost,” said Rocky Johnston, president of Bessey Tool & Die in Sparta. He currently has three Chinese repair jobs on his plant floor. “I’m telling them, you have to track this. These are the real costs.”

    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 China and Taiwan and everywhere else,” said Dave Muir, president of Paragon Die & Engineering in Grand Rapids. “Those aren’t the same shops that have huge discounts on them. Everybody wants those 30 to 50 percent, or whatever, cost reductions, and those are the ones that don’t have good quality. If you want to get cheap here in the states, there are plenty of manufacturers out there that will give you cheap stuff.”

    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. Cleveland asserts that local tool companies could be cost-competitive, all things considered, if they were held to the lower standards expected of Asian sources.

    “When they get cheap stuff from China, it’s expected,” said Muir, whose company has four different offshore sources, but seldom uses any of them. “I don’t think it’s prejudice; it’s turning a blind eye. These purchasing guys are measured on short-term decisions. If they can save 20 percent up front, their bosses are happy and they’ll get raises.”

    This is perhaps the largest difference between Japanese automakers and the Big 3, Baron said. Japanese tooling purchasers generally come from engineering backgrounds, whereas U.S. purchasers come from a business background. This could be why Japanese transplants are actively seeking local tool sources, while domestic buyers are looking overseas.

    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 West Michigan coalition, Indian manufacturers are modernizing their production of products for distribution throughout Asia.

    “We all assume that because it’s China, it’s cheaper,” Harder said. “In my opinion, it’d be wise to look at why you’re going over there in the first place. We need to find our strengths. … I’d just as soon sell them dies.”

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