HOW TO DECIDE WISELY.
For injection moulding it is well known that one requires the good old injection mould. A lump of steel with absolutely no appeal whatsoever and generally with a huge price tag. Superficially the end customer tends to think that the unavoidable mould costs are part of his problem. Only insiders know that the injection moulder, as processor, has an ever greater interest in proper tooling. Injection moulds are being purchased all over the world and there is a huge variety in considerations of how, where and at what costs to source injection moulds.
Mould costing analysis
Let’s take a look into the mould costing analysis and purchasing strategies mainly from an economical point of view. Let’s also see what end customers and processors have as mutual interests and which strategy serves best for all parties involved. End customers tend to judge the non-recurring mould costs as a bit of a pain in the ass. The unavoidable investment to set up production and sales of the products derived from the mould.
One might have strategic or economical reasons to really judge and assess mould costs as one-off investments. Local tax rules may play a role in how to process these costs into the accounting system but in general they are judged as costs.
It is not more than logical and natural that the end customer, who is going to pick up the tab for the mould costs in the end, is really driven at reducing these costs. As such, by nature, the end customer will seek the lowest possible mould costs. After all one is not willing to spend more money than absolutely necessary for these tooling costs.
Mould costs as part of the product price
In reality however the unavoidable mould costs should be judged as ‘facilitating’ costs in order to ensure swift, smooth, high-levelled, fast, constant and high-quality production which is supposed to feed sales. As such the mould costs are, without any doubt, always part of an amortisation of some kind.
The investments into tooling could be better seen as part of the product price instead of a preceding burden. Unfortunately the latter is usually the way it is approached in organisations as a result of which the drive is at minimising the investment costs.
What do we mean by this?
Well psychologically one tends to look at a one-off investment figure. In injection moulding this usually starts with € 10K + figures. The end customer may be distraught by this amount. However it should be more in perspective if one is able to assess the meaning of these costs into the product price.
Say the investment in the mould is quoted as being 100,000 currency units. One could blindly focus at the huge amount of 100,000 currency units but one should better make a product related analysis. If I sell the following number of products the following applies :
| units sold | absolute mould costs relative mould costs [per product] | relative mould costs |
|---|---|---|
| 10 | 10,000 | 10 % of the investment |
| 100 | 1,000 | 1 % of the investment |
| 1.000 | 100 | 0.1 % of the investment |
| 10.000 | 100 | 0.1 % of the investment |
| 10.000 | 10 | 0.01 % of the investment |
| 100.000 | 1 | 0.001 % of the investment |
| 1.000.000 | 0.1 | 0.0001 % of the investment |
| 10.000.000 | 0.01 | 0.00001 % of the investment |
In that range of sales figures it becomes obvious that the mould costs are about to vaporise and are being reduced to a mere pre-financing.
Sales risk for the injection moulder
Of course the critical end customer will object and state that it is not guaranteed that these sales figures will be met. However there the end customer is shifting sales risk on to the injection moulder. The uncertainty in sales drives the price reduction in tooling. It is difficult but at the same time vitally important that sales are assessed properly in order to facilitate tooling investments.
Reliable and robust injection mould
On the other hand the processor is primarily interested in the most reliable and robust injection mould. The injection moulder will at the most ad an administrative profit margin onto the mould costs, but has interest in earning through the production output of units. For the processor the mould is a one-off thing while production should have a long term character.
Additional costs injection mould
However if the injection moulder is forced into obtaining the required injection mould at the lowest possible costs there may occur two risk situations for the injection moulder. A non-functioning injection mould may cause either additional costs, due to it’s sales character mainly in the risk area of the injection moulder, or may obstruct sufficient output.
Low quantity sales eliminate the options to recover additional mould operating costs for the processor while high quantity sales may reduce turnover in the case of malfunction tooling. In either case the profitability of the processor is being pressurised.
Mutual acceptable pricing
So it seems there is a conflict of interest between the processor and the end customer when it comes to mould investment costs. However if one is willing to change the cost assessment model into an amortisation model one is able to find a mutual acceptable pricing.
End customers should realise that incomplete marketing models shift sales risks onto the processor who might even take additional risks in order to cope with this. A cumulation of such risks usually disrupts future business relationships.
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