DETROIT - A new global tooling policy at Ford Motor Co. will put the burden on suppliers to do a better job of sourcing the molds, dies, fixtures and other specialized equipment used to make commodity-type auto parts.
But suppliers still will be able to recover the cost of tooling in the prices they receive for those parts.
'We think the suppliers will buy the tools smarter than us and reduce our costs and theirs,' said Ford spokesman Ron Iori.
The Supplier Owned Tooling Strategy, as Ford refers to it, is set to begin with the 2003 model year. Parts contracts for the 2003 cars and trucks now are being awarded.
Beginning Jan. 1, 2000, the policy will cover all tooling orders and repairs of less than $20,000. The policy was first reported by Crain's Detroit Business, a sister publication of Automotive News.
One upshot of the new tooling strategy likely will be a scramble by suppliers to find the cheapest tooling possible - perhaps turning to new sources in developing countries - since they won't be able simply to break out tooling costs and pass them on directly to Ford. That would be a big culture change for many suppliers. In North America, for example, most parts makers source tooling domestically, where they have established relations with local tool builders.
In an internal memo, Ford suggests that suppliers may 'get the benefit of procuring their tools from countries with weaker currencies and leverage this opportunity to achieve piece price targets.'
SHIFT MAY BE RISKY
That sounds fine on paper, but shifting tooling sources offshore can add risk and cost to a supplier's business, said Louis Papp, a consultant to the Canadian Association of Moldmakers in Windsor, Ontario. Currency fluctuations alone can remove any cost advantage on some jobs, he added.
'Ford will not save money in the end by pushing that,' Papp said.
But he conceded that quality tooling is increasingly available in developing countries. China, for example, has a growing base of tool builders making molds for plastic parts. But those tool makers often are few and far between, Papp said.
Traditionally, suppliers charged Ford for tooling by passing on the direct cost to the automaker. Ford then retained ownership of the tools and carried their value on its books. Retaining ownership of tooling - and control over parts production - has been viewed as something akin to a birthright by automaker executives for decades.
$206 MILLION EXERCISE
Under the new policy, tooling cost for certain parts - mostly commodity-type components - will be shifted to the supplier, which will fold these expenses into engineering-related overhead. The suppliers will own the tools and carry them on their books. But Ford will retain the right to lease or buy the tooling in case the supplier shuts down production because of a labor strike or some other interruption of business.
Some parts families that fall under the new Ford tooling strategy include clamps, latches, fasteners and drivetrain and suspension parts. The parts comprise about 25 percent, or $206 million, of Ford's current production tooling bill.
Still, Ford will retain ownership of tooling for parts it views as critical to the design or function of its vehicles. These include tools built to produce body panels and moldings, instrument panels, engine castings and wheels.
Papp was philosophical about Ford's new policy. As the industry becomes more global, many of the old ways of buying tooling inevitably will change.
Said Papp: 'In this world, you need give and take.'