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move to a direct-sourcing model, they take on this responsibility themselves, and they can be unprepared for what "program management" comprehensively entails. When it comes to tooling supplier profits, HRI has identified a minimum profit margin expectation for tooling suppliers (Figure 4). This includes provisions for both reinvestment in people and reinvestment in process improvements, including capital equipment. OEMs that believe this profit amount is too high are again focusing on the wrong areas. Measures to drive down tooling-supplier profits are levers that will not enable OEMs to realize lower overall costs. The ability of tooling suppliers to reinvest in their businesses will determine the long-term successful reduction in supply-chain costs. FIGURE 4 Tool supplier fair proft margin. can get a better handle on this tool data and submit it to the tool supplier in a much more complete form, and limit the number of engineering changes, the OEMs can benefit from substantial savings in overall tool cost. The projected increase in tooling demand over the next five years, as well as exponential growth in mass customization and complexity, mean the total cost for tooling at each OEM also will be far greater than any has paid in the past and will want to pay in the future. As a result, most OEMs have set very aggressive cost-reduction targets for their tooling purchase teams. These new, aggressive budgets will be very difficult to meet if the OEMs focus on price levers applied in the past without working toward greater collaboration with suppliers. The challenge will be how to meet customer demands and maintain profit margins in this changing dynamic. In the past two decades, there has been an increased use at specific OEMs of another sourcing structure that HRI has classified as direct buy (Figure 3). In this structure, the OEM actually establishes its own preferred or required list of tooling suppliers. Another structure identified through this vendor tooling study is described as direct sourcing (Figure 3). It involves the OEM contracting with the tooling supplier directly and basically circumventing the Tier 1 supplier, increasing the opportunities for early OEM/tooling supplier collaboration. In many examples studied by HRI, the tooling supplier was selected before sourcing of the Tier 1 supplier. Those OEMs that have trialed direct-sourcing models have had issues with executing programs, which has led some to abandon this new structure, at least temporarily. In the traditional sourcing model, the Tier 1 supplier is responsible for the program management of the tooling supplier. When OEMs Summary So, how do OEMs, Tier 1 suppliers and tooling vendors work together to solve the anticipated capacity gap and reduce costs while still making a fair profit margin? OEMs must create a structure in which Tier 1 suppliers and tooling vendors will be encouraged to work together to examine the "below-the-surface" issues that drive overall costs and will be rewarded for doing so. Working together to solve problems and improve part and tool designs may be the only means of jointly capturing cost-reduction opportunities. CONTRIBUTOR Laurie Harbour is president and CEO of Harbour Results Inc. She has more than 25 years of experience in strategic planning, benchmarking, operational assessments, lean manufacturing and performance enhancement. Harbour Results specializes in manufacturing, production operations and asset-intensive industries, as well as a number of manufacturing processes, including stamping, tooling, precision machining and plastics processing. Full survey results are available from Harbour Results Inc. OESA provides a forum for automotive suppliers by addressing issues of common concern through peer group councils. With 450 member companies that have global automotive sales exceeding $300 billion, OESA represents more than 70 percent of North American automotive supplier sales. The group is an affliate of the Motor & Equipment Manufacturers Association. FOR MORE INFORMATION: Harbour Results Inc. / 248-629-9331 / harbourresults.com Original Equipment Suppliers Association (OESA) 248-952-6401 / oesa.org moldmakingtechnology.com 39