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Supply Chain Management By Laurie Harbour 2013 Automotive Vendor Tooling Study The results of this industry survey set the stage for suggested practices and strategies that could help the entire vendor tooling value stream be more competitive, have adequate capacity and reach its desired success. FIGURE 1 Proportion of tooling available for planned vehicle launches. T ooling spending by automotive OEMs is expected to grow to $15.2 billion by 2018, but vendor capacity will be inadequate to meet this demand, according to a study of the North American vendor tooling industry. Harbour Results Inc. (HRI) and the Original Equipment Suppliers Association (OESA) collaborated on the 2013 Automotive Vendor Tooling Study to provide an understanding of the role of each stakeholder (OEMs, Tier 1 and Tier 2 parts suppliers, and vendor tooling suppliers) in the entire vendor tooling value stream. This study also served to uncover the root cause of inefficiencies, waste and risks impacting the supply chain, while identifying best practices and costsaving opportunities. In addition to reviewing the expected future challenges for the industry associated with capacity shortages, the results shed light on many of the levers used by OEMs to drive down the price of individual tools as well as those cost factors that drive price up, including costs below the surface and processes that are mostly overlooked by OEMs. The study also shares best practices and ideas for improvement that may generate the savings needed to maintain and grow this industry in North America. Challenges In addition to talent and skill shortfalls, there are many other challenges facing the North American automotive industry. Off-shoring, for example. Although OEMs are not specifically 36 MoldMaking Technology December 2013 requiring that Tier 1 suppliers use off-shore tooling operations, the fact that the OEMs set unrealistic target prices for tooling forces many Tier 1 suppliers to use low-cost country sourcing (LCCS) to meet those target prices. OEMs believe that the level of LCCS will remain the same (not increase), primarily due to a few key factors: an overall increase in the demand for tools and for more complex tools, in particular, in North America; dramatically changing economic factors in China; and timing concerns. OEMs are demanding lower costs on tools and are expecting them to be delivered faster, which is generally not possible when tools are made overseas. The study results found that the actual savings from LCCS is not as high as most OEMs may believe and that there is a disconnect between perceived and actual costs. Payment terms also are one of the major sticking points in the automotive tooling industry for tool suppliers and Tier 1s. Eight out of 10 OEMs acknowledge that their standard payment terms follow PPAP (production part approval process) or the equivalent, which takes place near the launch of the vehicle and much later than when the tool was delivered to the Tier 1. As demand increases and strategies evolve, OEMs realize that to attract and retain the best tool suppliers and obtain capacity, they must improve payment terms. HRI believes that there will be an increase in the use of progressive payments with certain OEMs. "Transactional waste" impacts pricing, too. Tool suppliers have increased prices to cover things such as unrealistic prof-