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SHAPING STRATEGY


Storing Customer Tooling Has Financial Implications


JEAN BYE, DOTSON IRON CASTINGS, MANKATO, MINNESOTA


Te customer requirements around the casting can become difficult. Customer-service decisions, like whether to inventory parts, use cus- tomer supplied containers, or provide value-added services, tooling insur- ance, tooling for life, free PPAPs, free shipping, bar coding and EDI, are complex and, in many cases, drive up costs. Tis is particularly true when the service is unique to one customer. You likely find yourself asking,


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are these services differentiators? Do they bring down the customer’s costs? Does the customer value the service enough to pay the cost? Does it en- hance the entire supply chain or just shift costs from one party to another? Is it simply a cost of doing business? Something that was initially a dif- ferentiator might, over time, become a cost of playing the game. Sorting these issues out while the market re- mains a moving target is a challenge. One customer service area—tool-


ing care and handling—can be a major issue, both because of the large dollar value and the urgency of re- placement in case of a loss. Typically, the customer owns the tooling, which is stored at the metalcasting facility’s location. Some customers request the casting supplier accept worn out transfer tooling and agree to replace it with new tooling should anything happen, regardless of the revenue generated by the tool. And some cus- tomers request the foundry provide storage for the life of the part—up to 50 years or more—and accept the risk to replace it with new tooling should anything happen. Some metalcast- ers have reported 75% of the tooling they store (for free) does not generate revenue annually, yet they are asked to take on the liability for repairs and replacement indefinitely. Accepting risk of loss due to fire,


n the metalcasting industry, making the castings often is the easy part of the business.


flood or wind is one subcategory within this issue. What are a met- alcaster’s options? 1. Formally decline to accept the risk. 2. Purchase insurance on your own policy to cover the customer’s property held at your location. Insuring on your policy typically will be more expensive than insuring on the customer’s policy because the customer’s underwriters can spread the risk of loss across all their casting suppliers’ locations. If an individual casting supplier purchases


What was initially a differentiator might, over time, become a cost of playing the game.


insurance, the risk is concentrated at one location. An additional concern with purchasing your own insurance is the acceptance of liability for losses arising from reasons not covered by your insurance policy.


3. Self-insure by agreeing to take on the risk without purchasing insurance, instead choosing to put off any tough discussion with the customer. Hope either nothing bad happens or, if it does, it is so bad you would be going through bankruptcy. Beyond a catastrophe, the day-


to-day storage and maintenance of tooling can present other issues, such as having enough square footage, find- ing a location where the environment won’t cause tooling deterioration and investing in racking to keep tool- ing safe. Inventory management and responding to customer requests for information on the tool become costs. Additional costs are associated with


maintaining old production processes needed to run old tooling. If you charge for tooling storage, do you accept the insurance risk? Who pays to repair an aged tool when it hasn’t been run for 10 years? Dotson Iron Casting’s policy on


tooling is: a) customers insure their own tooling; b) Dotson provides storage for up to three years after the part is last run; and c) Dotson provides minor repairs until the tool has reached life, at which time the customer pays for major repairs/replacement. Each of these peripheral areas is


complex, and the decisions can have unintended consequences that impact performance to the customer. Te bottom line: the choices made must be in the context of overall business strategy and the competencies of the organization. What role do you play in the market, and how do these peripherals support or detract from that market position? I challenge the industry associa-


tions, foundries, foundry suppliers and customers to work on solutions that leverage and improve the supply chain as a whole. As the industry players sort through these questions, indus- try associations like AFS can help create industry standards and develop an industry tool insurance program. Casting customers need assistance in finding firms to provide storage for the tens of thousands of inactive pat- terns taking up floor space in found- ries across the country. Foundries and customers can work together to find the lowest cost method of accomplish- ing needed tasks rather than simply stacking or shifting costs. As our world continues to become


more complex and businesses con- tinue to look for ways to shift costs and responsibilities, the complexity of the strategies and issues surrounding the business of making castings will continue to become more complex. Jean Bye is president of Dotson Iron Castings.


November 2013 MODERN CASTING | 61


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