Tooling Cost - As an OEM I am paying for a new tool

jkittle

Involved - Posts
#1
As an OEM I am paying for a new tool on an upcoming project. This tool is quite expensive and the supplier wants to charge a 20% overhead fee. This is the first time I?ve encountered this.

This seems to be out of the norm. There is a run off fee/PPAP fee already so if I?m paying for the tool and PPAP why would I pay an extra 20% of the total tool cost?
 
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Golfman25

Trusted Information Resource
#2
Sounds to me like they are breaking out the cost items of the tool. Parts, labor, PPAP, overhead, etc. Frankly, only thing you should concern yourself with is the total cost and whether your vendor has the expertise to build a working tool. In this business, you get what you pay for. Good luck.
 

jkittle

Involved - Posts
#3
This is where I have the problem. The supplier is only responsible for manufacturing, the tool is being made by a tooling company. Since I'm paying for the tool why would I add on an additional 20% to a 700K tool when the supplier will do noting but install the production tool and run PPAP samples.
 

JAltmann

Quite Involved in Discussions
#4
I agree that adding G&A to customer purchased tooling is simply gouging. What little administrative overhead involved in the pass through should simply be absorbed by the vendor. I have worked with companies that do similar and do not feel it is a good practice.
 

Wes Bucey

Quite Involved in Discussions
#5
My high tech contract machining company "sometimes" required special tooling or fixtures to make an OEM's product most efficiently. This was a big deal and we discussed ALL the pros and cons with the OEM. One major factor was "net cost in place" on the OEM's finished assembly. If tooling didn't result in lowest price, why bother? One of our marketing pitches focused on "the right machine for the job" with net cost of product in place as a selling point.

We often offered several options to the OEM (if they were feasible.) Options might include:

  1. supplier invests capital, charges higher unit price and requires guaranteed minimum quantity purchase over a fixed period of time.
  2. supplier invests capital, charges two prices - lower unit price for product plus amortized payment for tool with a balloon payment if OEM drops product line.
  3. OEM pays tooling cost up front with no add-on by supplier for interest and risk.

There were some other options, but in ALL cases, supplier retained ownership of tool and took responsibility for maintenance and necessary replacement (sinking fund established as part of unit pricing to cover maintenance/replacement.)

My thinking as a supplier was this:
I did not want tooling to belong to OEM to use as a lever to take business to a cheaper competitor or to bring in-house and I made that clear to OEM up front. If OEM didn't want to play by those rules, OEM could go elsewhere.
 
S

silentrunning

#6
why would I add on an additional 20% to a 700K tool when the supplier will do noting but install the production tool and run PPAP samples.
I doubt that a $700,000 tool is going to be a minimal installation. Have you signed a long term agreement and a guaranteed minimum buy with the supplier or is he just guaranteed a purchase order for PPAP and samples? How much did the supplier spend on the machine that the tooling will be installed in? These are considerations that must be factored in when quoting a job. I do not consider this gouging by any means.
 

Golfman25

Trusted Information Resource
#7
This is where I have the problem. The supplier is only responsible for manufacturing, the tool is being made by a tooling company. Since I'm paying for the tool why would I add on an additional 20% to a 700K tool when the supplier will do noting but install the production tool and run PPAP samples.

I guess you'll need to ask them. But, imho, they are doing a lot more than installing the tool and running samples. They are taking care of your $700,000 investment. Who's financing the build? How long will they wait for payment? Who did all the build reviews? Who's doing the debugging? How many times will they need to run samples? Storage? Etc.
 
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