What is in this article?:
- Controlling the Cost of Tooling
- Evaluating, Selecting, Estimating
- Need for visibility and control
- Cost pressures move downstream
- Capabilities to look for
Any company that makes or buys engineered components is likely to spend significant sums on tooling – tens, hundreds of millions, even billions of dollars per year.
With increasing regional and global competition and new demands from customers for lower prices and higher service levels, manufacturer profits are under intense pressure. As a result, OEMs and suppliers are investing in product-cost management and looking at every opportunity to reduce product costs without sacrificing quality. There is a strong desire to understand and control product cost variables, especially larger expenses like tooling. Any company that makes or buys engineered components is likely to spend significant sums on tooling – tens, hundreds of millions, even billions of dollars per year. Ask any manufacturer in automotive, industrial equipment and consumer goods manufacturing; they know that tooling has a significant impact on their bottom line.
The Need for Visibility and Control — For years, many manufacturers put very little scrutiny on tooling budgets - partly because tooling costs were sort of a mystery. Quotes for tooling were (and often still are) very high level, broken down only by material and labor costs. Very little detail is made available and there are few cost standards to compare tooling costs against. Manufacturers just didn’t (and still don’t) have many valid reference points. The information they did have often depends on a few individuals or suppliers with specific tooling expertise. And these benchmarks may even vary quite a bit. All this has made it difficult to compare and assess whether tooling costs are right or not. As a result, most manufacturers simply absorb tooling costs and focus their product cost savings efforts on more predictable and measurable areas.
This is changing though. With the increased pressure on profitability and cost management today, OEMs and suppliers are taking a closer look at tooling costs. They want to make sure the prices they are being charged are valid and are requesting more detail on tooling estimates from internal costing experts as well as suppliers. But this greater degree of granularity requires better, easier to use methods to estimate the costs of tooling; systems that can be used by both tooling experts and non-experts.
Not surprisingly, the cost pressures make their way downstream in the supply chain as well. Tier 1 and Tier 2 suppliers responding to RFQs from OEMs are also being challenged to provide greater detail about tooling costs. It’s a time-consuming process that is being done manually today with homegrown, template type solutions developed in MS Excel or similar database applications.
Compounding the problem is that an individual must have great expertise in costing and tooling to develop a quote. Usually, a company has a handful of different individuals generating quotes who may be using different estimation methodologies, creating even more inconsistency. Suppliers are looking to automate and accelerate this process so that they can respond more quickly and accurately to RFQs and ultimately drive increased revenues.