Customers own most of our tooling - Is this Customer Provided Equipment?

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Godfrey Partridge - 2003

This is not an easy one, but the standard clarrified it when it changed from "Customer Supplied Products" to "Customer Property" which now makes it quite clear. If you manufacture tooling and charge your customer for it, then you must idetify it as belonging to the customer. You must also maintain a record of any unsutable tooling, which means keeping a clear measure of the wear and tear it suffers during process.

The big problem here is when you only part charge for tooling. Anybody got a solution to that one?

Godfrey Partridge
Isobiz.com :bigwave:
 

Wes Bucey

Prophet of Profit
Yes. This is a problem I first began to address in 1990. We ran a high tech contract machining operation. Frequently, we had to design custom setups and tooling.

We originally thought we had only two choices on recouping the cost:
1) pack the cost of the tooling into the unit price of the product
or
2) charge the customer a separate fee for the tooling, in which case the customer considered he "owned" the tooling, even though we were responsible for the correctness of the tooling plus the maintenance and repair or replacement if it broke.

In the first instance, we found it difficult for customers to compare apples and oranges when considering bids on work. In the second case, we had to face the possibility of a customer demanding we give him our tooling so he could take it to a competitor who would do the job for less.

Our solution was a third option, which we found much easier to market and encountered little or no resistance from our clients and which directly answers the question of "partial ownership."

WE created a new policy where we charged customers a one-time non-refundable engineering fee for designing tooling, which we would own.

We found an extra benefit in extending the concept to set up fees.

Previously, the industry standard was to charge a sliding unit rate depending on how many components a customer ordered at one time. (i.e. price discounts for quantity orders.)

The real cost of production of many components is the setup time to have a modern machine tool turn out a finished piece from raw stock. Once set up, the tool can turn out one or a million pieces with only periodic resharpening or replacement of cutting edges.

We made a marketing tool out of that fact:
We told the client:
"Whether you order one piece or one million, the unit price is the same.

We will charge one set up fee each time we have a firm order from you for any quantity. We will make deliveries on any schedule and in any quantity you desire up to five years on a blanket order.

If you order in small quantities, we will charge the same setup fee for each order. The choice is up to you."

With a firm blanket order in hand, we could make the decision how often to setup and run off pieces to put in inventory. We were able to smooth our production schedules, knowing we could keep finished goods in inventory to cover scheduled deliveries (plus panic orders to cover the customer's contingencies) and set up and run off more parts whenever we had slack production periods.
 
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Diana Cadwalader

If your customer paid you for the tooling (even though you actually had it mfg'd) - - it is customer owned tooling and should be permanently and visually identified as such. This is quite common in PIM facilities where a mold us used for one customer's product only.

Wes's post brings up some very good points regarding the ownership of the tooling the options that customers retain when they own the tooling. I would certainly consider those options.

Good luck.
 

Wes Bucey

Prophet of Profit
I think a major point of my comment was not clearly expressed by me:

Customer does NOT own the tooling by any operation of law WITHOUT a provision in the contract that he does, in fact, own it.

We exploit that by making an upfront statement when negotiating the contract that we do not intend to maintain (or store at our expense) customer-owned tooling or equipment.

We explain the benefit this way:
If the customer wants to own the tooling, he should be responsible for insurance, storage, maintenance, repair, replacement, periodic inspection for suitability, etc. We tell him we would be happy to perform these for him for a specific periodic fee (paid whether we EVER manufacture a component for him with the tooling.)

Then we ask him how we would resolve any dispute that arose between us on the suitability of the tooling for manufacturing his component if he were to undertake the responsibility for storage and maintenance of the tooling at his site. The alternate of us owning the tooling becomes much more attractive.

In the instance of giant forms for sheetmetal or similar super expensive tooling, the contracts do, in fact, spell out all of these responsibilities, including how the inventory shall be maintained, notices, etc.

My suggestion for Mshell is to query all current owners of the tooling on exactly what terms are understood by them, get them signed off in writing, and vow to change procedures for all future tooling to be something more organized and user-friendly.

Alternately, in the absence of any previous understanding, Mshell's company could make a unilateral declaration of terms to the owners with the offer to ship C.O.D. any tooling back to customers (former customers?) who object.

This would be a good time to take inventory and determine how much of that tooling may be obsolete and the original owning company out of business (or in any event, having ceased doing business with Mshell's company.) You might be surprised how much dreck is in inventory.
 

barb butrym

Quite Involved in Discussions
to me its simple logic

ya gotta answer the question....when we stop making it or it is worn out, who gets the tooling?
typically you get to keep it if you paid for it. So they own the design of it, you own the piece...and you promise to destroy, reconfigure or what ever or whatever. If they get it back, then they own it.
 
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