Supply Chain Management:Strategic and Tactical Supply Chain Issues for the Toolmaker

“Our clients have found that they can save 50 to 70 percent on tooling by having us manufacture the tools for them in China and export them to their facility, a local plastics shop or a plastics injection molding facility.”

This statement was pulled out of a corporation’s marketing material from an Internet search based on the statement “global plastic moldmaking” in a Yahoo search engine. The next paragraph reads “… ensures 100 percent satisfac-
tion on our tools.” This is your competition.

This is what corporation executives and business owners are reading and discussing. How did this global activity get started? Is it just a search for low-cost labor, a lack of local skills or some part of a reasonable new supply chain management strategy?

 

Understand the Claims

There are at least 10 factors that must be considered to help substantiate these claims and better understand the suggested potential 50 to 70 percent savings:

1. Level of complexity in the part and tooling
2. Quality of the part design and whether the design had settled into a locked state
3. Cost driver of the project: design or the physical production of the tool
4. Match-up of part in an assembly or is this a stand-alone device
5. Leadtime requirements
6. In a project, what tools need to be developed first for further assembly development
7. Resources for design and then manufacturing in the targeted low-cost nation
8. Program management overseas
9. Volume of parts to be produced off the tool
10. Part quality requirements

When competing against such claims of your global competitors you may want to raise some of these issues. Unfortunately, you have only a limited opportunity in a fast-paced global market. Therefore, we advocate preparation in advance both strategically and tactically.

 

Know Core Competencies

Know your own core competency and take a proactive approach to monitor the core competencies of your competitors, potential suppliers, partners—in fact, your potential global supply chain.

So what constitutes core competency that leads to competitive advantage? In the case of toolmaking, core competencies are made up of:

• Resources
  Facilities, machining centers, instruments for design (CAD/CAM), prototyping and testing capability, materials sourcing, etc.
• Capabilities
  Skills, knowledge, intellectual property (IP), customer response mechanisms, support staff, etc.

To effectively compete, a core com-petency needs to be examined for how it will be utilized. At a minimum you should review internal strengths and weaknesses while keeping an eye on external opportunities and threats in the global toolmaking business. From this you may see whether to focus on unique tools that differentiate your customer’s product features and add value, or simply to attempt to compete on lowest possible cost basis. In either case, however the core competencies are deployed, you need to find some balance in the inevitable demands for efficiency, innovation, quality and customer support. There is no one best way to do so.

Core Competency Example
For example, looking at the resources and capabilities as outlined above, if internal resources are your strength, but capabilities are weak, you may want to promote hard asset efficiency, easy access to those who want to outsource the production of tools and avoid complicated arrangements involving intellectual property. On the other hand, if you have unique capabilities, but physical resources are undeveloped, set up a system to protect your skills base, the intellectual property (IP). Then, focus on quality and speed of design, and emphasize innovative features. In this case your concern for production efficiency may become a secondary issue.

Table 1 - Integrating part-project options.
Option	Part Characteristics	Development Scheme
1	Complex part, full leadtime available.	Domestic design, overseas low-cost tool production, domestic run-off with tool adjustments made in domestic shop.
2	Simple part, full leadtime available.	Overseas low-cost design and tool production.
3	Complex part with intellectual property concerns.	Domestic design and development in total.
4	Standard part with high labor content production.	Overseas low-cost design and production, with domestic run-off and adjustment.
5	Standard part with short leadtime.	Domestic design and production.
Tables courtesy of DKT Engineering, Ltd. and RWH Partners.

 

Taking Advantage of the Best Resources and Capabilities

There is a complete spectrum of possibilities and combinations in delivering or acquiring a set of tools for a new product roll-out. Sticking to domestic or in-house resources and capabilities will not be the answer in the future for every design and tool. On the other hand, turning over all designs and tools to a low-cost global provider, such as China or Eastern Europe, is not the answer.

How can your tooling project take advantage of the best combination of resources and capabilities—regardless of location—in the future? Your customers will be reading the quotes and marketing hype with which we opened this article. They are aware of the growing competency overseas. Chinese universities graduate more than 50 percent engineers while our engineering enrollment has dropped to less than 20 percent. They may be tempted to turn over their new product tooling in total to an overseas source. So how should you structure your programs to take advantage of the most optimal set of resources and capabilities?

The Plan
Let’s look at an illustrative example to explain what we are advocating.

 

Part-Project Options

Assume that you have evaluated your core competencies and found that you have strong capabilities—skills, knowledge (IP), support staff and a customer response system. When presented by your client with a multi-tool new product program with a full range of part complexities, consider the part-project options (see Table 1).

It is important that you examine the matrix of the tooling project options with respect to global capabilities and resources objectively with respect to what you keep in-house and what you farm out, i.e. outsource. Each part should be evaluated as to its complexity, intellectual property content, leadtime, fit-up with other components, etc. Hopefully, common sense and honesty would prevail in developing the customer’s tooling plan.

 

Resources and Capabilities

The situation would continually change as new resources and capabilities are developed globally. On each round of relationship building you and your competitors will continually be squeezed for shorter leadtimes at the lowest possible cost and best quality. The resources and capabilities matrix will be changing continually. You need to stay on top of it. Unless you do so, the global market will pass you up—spurred by the Chinese or East European economic growth and related ads cited in the opening of this article.

There will be a few engineering product managers that will continue to hang on to a fully domestic program. Initially, more likely than not, the driving force will be cost. Your shop needs to demonstrate a flexible attitude and global capability to meet the customer requirements of cost, leadtime and quality. Unless you do so, you will no longer be able to quote a complex, multi-part job completely in your captive shop.

However, with an integrated project plan you will not only provide the best cost, but also the best value in leadtime and quality. You will be ahead of your competitors. Your shop may or may not offer the absolute lowest price, but the differential will not be extreme. Any additional cost could be offset by providing assurance that the project is delivered on time. The project manager surely knows that once the contract or purchase order is released, the customer’s project focus will shift to delivery and quality issues.

Table 2 - Strategic issues.
Issue	Questions	To Investigate
1	Who supplies your supplier (partner)?	How reliable is his supply chain for cutting tools, mold material, etc? Is QC throughout the supply chain adequate?
2	Who are our supplier’s customers?	Are you the sole customer or one of many? What leverage will you have? Will it lead to a clear commitment, flexibility and trust?
3	How good is the local infrastructure?	Will you have to face excuses of power failure or inadequate computer support services, etc.? Is foreign language not a problem?
4	What international laws apply?	Are there local labor content requirements and border customs restrictions? Is it likely patents may result and procedures understood?
5	Are there intellectual property (IP) safeguards?	Are there trade secrets to protect? Does everyone understand what your IP is and how you want, and can, protect it?

 

Global Partner Relationships

Just as you have developed your local business, you need to develop and choose your global partners wisely. Face-to-face meetings are strongly advised. Do not rely on Internet information alone. Even though the Internet has brought business-to-business communications closer, it is not yet a substitute for old-fashioned investigation and due diligence as if you are going to buy out/purchase your partner. This is a serious relationship. This global resource or capability will be servicing your customer at a tactical level, while the partnership decision is at the strategic level. There are many factors to consider as to financial stability and technical capabilities. Consider the five additional issues, questions to ask and samples of what to investigate in Table 2.

Who supplies your supplier is a very important question when you consider outsourcing internationally. Keep in mind, besides a language barrier, there are culture differences that through second- and third-party communications can lead to problems. In some cases you may just have to get out there for face-to-face meetings to gain confidence. That of course, is so much more critical if there are any intellectual property issues involved. When considering your supplier’s physical resources and professional skills, check their local project management experience, and ability to adjust to design and schedule changes. These can differ greatly and lead to misunderstandings?

 

Achieve Global Supply Chain Success

In summary, to survive and succeed in the global market we advocate careful use of the global supply chain, taking advantage of global resources and capabilities so that you might provide the greatest value to your customers, your business stakeholders, and that includes the welfare of your employees. Only through careful selection of your global partners will you have the best combination to compete locally and globally, and provide high value at the lowest cost.