Michigan is the undisputed “tooling capital” of the nation. It has 25% of domestic tooling employment and 30% of the nation’s tooling payroll. The industry is a high-wage, high-value-added employer that provides critical services to the state’s manufacturing base. And, it is an industry that is experiencing significant restructuring. Last year, IRN conducted a competitive assessment of the West Michigan die and mold building sector for The Right Place, Inc., which is West Michigan’s regional economic development organization, focused on retaining, expanding and attracting businesses to the region. (The report can be accessed at www.therightplace.org) This assessment brought us to two conclusions about this industry: first, that the industry is going through a fundamental restructuring, not just a downturn; and second, new business models need to be developed to support the long-term competitiveness of this critical industry.
The tooling industry is dominated by the auto sector (60% of dies and 40% of molds go into the transportation sector), so it is not surprising that it is being confronted by the same business challenges as other automotive suppliers:
- Commodification. This historically craft-oriented business is becoming “commodified.” The core process–precision cutting of metal–is no longer a distinctive competence as technology allows it to be done by any number of shops, at vast distances from the customer.
- Technology. Advances in design and manufacturing technology have revolutionized the die and mold making industries in the last decade. Solid parametric modeling design technologies, high-speed machining, rapid tooling development, and lean manufacturing are becoming standard practice in the industry.
- Foreign Competition. The domestic industry is facing increasingly strong foreign competitors that are supported by low labor costs, government subsidies and incentives designed to capture global market share. (Key lower cost competitors include Portugal, China, Thailand, Eastern Europe and Malaysia.)
- Consolidation. Smaller shops are consolidating and having difficulty competing as “stand-alone” firms.
- Margin Pressures. Margins are decreasing and there is fierce price competition. While the tooling sector has traditionally been a high margin business, its margins have been severely reduced, and now often do not look much better than low-value-added component producers.
- Customer Requirements. Customers are becoming more demanding and acting less like “partners.” They are shrinking lead times, insisting on price reductions and stretching out payment terms (payment at PPAP or beyond is now typical; progress payments are a rarity).
While many of these challenges confront other manufacturing sectors, the impact on tooling firms tends to be more intense because of their small size. Over 80% of Michigan’s tooling establishments have fewer than 50 employees. As a result, they tend to have undeveloped business and management systems that limit their ability to adapt to rapid changes.
Competitive Business Designs for Tooling Firms
The survivors in the die and mold making sectors are likely to be larger; highly technology oriented; focused on niche markets; utilizing a broad range of trading partners; and offering an expanded range of value added capabilities. Many of the leading firms are already pursuing the “path to world-class competitiveness.” However, the challenge is to increase the competitive-ness of the overall tooling sector, not just a handful of leading firms.
Customers Have To Change Too
While there are many competitive improvements that can be made by tooling firms themselves, large-scale improvements in productivity in this sector will also depend on different behaviors from the customer base. Key among these are:
- Implementing functional build.
- Implementing clear industry-wide tooling standards.
- Better program management to eliminate last-minute engineering change orders.
- Involving tooling companies up front in the product design process.
- Measuring tooling cost competitiveness on a life-cycle basis, not just a cost-of-procurement basis.
- Providing for more “level scheduling” to improve project management and maximize return on capital investments.
Tooling firms cannot make these changes alone. Buyers are also part of the equation, and need to make tooling suppliers long-term, strategic partners if they want to achieve significant cost savings.
Collaborative Business Designs
In Michigan, several groups—including the Michigan Manufacturing Technology Center (MMTC), the Center for Automotive Research (CAR), and The Right Place—are helping tooling firms build collaborative business models.
In these collaborative models, tooling firms bid as a group on tooling quotes. They present a single point of contact to the customer (including a single purchase order); divide the work among the coalition members; do program management across firms, for the customer; and agree to utilize common standards for engineering changes, tool design, and other elements of the tool build process. The collaborative business model only makes sense for larger, more complex tooling packages where the parts built from the tools are going to interface with each other in the final product.
To date, there are three coalitions that are active or in the process of formation. One focuses on large sheet metal dies for automotive body-in-white, one is organized around progressive dies, and one is organized around plastic molds. The coalitions involve some of the largest and most sophisticated tooling firms in Michigan.
The firms involved in the coalitions have estimated that collaborative business practices (workload balancing; program management; functional build; lean manufacturing; and engineering efficiencies) will allow them to implement costs savings of 35% to 40%.
And the coalitions are being supported by federal advanced technology investments. CAR recently secured a multi-million dollar federal grant to develop a “digital body development system” that will allow digital simulations of body-in-white tooling, forming and assembly. It will help reduce lead times, die try-out time, engineering change orders, and fit and finish defects.
It looks like the mold and die industry will finally get some of the surge in demand they have been expecting for the last two years. First, the recent surge in GDP growth (over 7%—the highest since the early 1980s) was fueled in large part by business capital investments. Second, new vehicle model introductions (which tend to drive tooling demand more than unit volumes) are scheduled to increase by close to 50% in the next five years. These developments should start showing up in new tooling orders.
Characteristics of the Survivors
- Strategically focused
- Deep, long-term customer relationships
- Unique product or process knowledge
- Broad range of services
- Fully integrated leading design technology
- Strong program management
- Strategic financial management, including high knowledge of real costs
- Committed to continuous improvement and lean practices
- Ability to act as a broker and manage global sourcing and production alliances Ability to collaborate with other firms
Advantages of a Collaborative Approach to Tooling
- Simplifies tool sourcing for the customer
- Allows member firms to go after larger orders than they could bid on alone
- Supports more of a “systems” approach to tooling—integrating product design, engineering, tooling build, tryout and production launch
- Promotes the development of niche specialties by tooling suppliers
- Supports the implementation of functional build for dies and molds
- Allows for significant efficiencies and cost savings.