Controlling the Cost of Tooling

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 plastic and stamped sheet metal parts is likely spending significant sums on tooling – tens, hundreds of millions, even billions of dollars per year. Ask any manufacturer in a range of industries; they know that tooling has a significant impact on their bottom line.

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 available and there are few cost standards against which to compare tooling costs. Manufacturers just did not (and still do not) have many valid reference points. The information they did have often depends on a few individuals or suppliers with specific tooling expertise. In addition, 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 charged are valid and are requesting more detail on tooling estimates from internal costing experts as well as suppliers. However, this greater degree of granularity requires better, easier to use methods to estimate the costs of tooling, systems that usable 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 an increase in detail about tooling costs. That request is a time-consuming process done manually, 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 the quoting process so that they can respond quicker, and more accurately, to RFQs, ultimately driving increased revenues.

To manage, effectively, tooling costs, designers, cost engineers, sourcing professionals, and suppliers need to be able to quickly and precisely determine the cost of tooling for any given product or part. They also need to be able to standardize the tool estimating process to ensure consistency and set cost benchmarks for future reference. At the same time, they cannot give up control. The cost of manufacturing a product or tool in one factory or region may be different from another. Machine and process capabilities may be different. If manufacturers are really going to understand their tooling costs, they need to estimate costs in a way that reflects the unique capabilities of their specific manufacturing environments.

Manufacturers also need the ability to generate highly detailed cost estimates on components for both injection molding and stamping processes. However, beware of systems that can only be used by tooling experts. Some capabilities to look for include.