| Marland Notes | |
THE CHINA SYNDROMEThere is no question that from the standpoint of “cash out” molds are less expensive in China than they are in Pittsfield, Massachusetts. This point was made crystal clear when we were visiting potential customers outside the USA a few years back and saw a rich assortment of molds, presses and chillers carrying the label, “Made In China.” Plant Managers we talked to were proud of the fact that they were able to set up production for a fraction of what it would have cost had they purchased machines and tooling from western tool manufacturers. Our first response was to ask ourselves the question, “Should we be dusting off our resumes?” One installation, in particular, provoked our curiosity, as it was a 24-cavity mold making closures similar in size and weight to those for which Marland has made numerous molds. Typically, the Marland mold was operating 24/7 for many years with efficiency of 90% and a cycle time in the range of 7-9 seconds. Please note that we were making the comparison to older Marland molds and not the latest generation. The first thing we observed about the mold from China was that only 16 of the 24 cavities were operational. The next thing we noticed was that there were 3 employees gathered around the machine to do 100% inspection of the finished parts and to trim the flashing off of each part with paring knives provided for that purpose. This contrasted with the experience of Marland customers who assign one technical person to oversee the operation of several presses at the same time with no need for 100 % inspection. The mold seemed slower than a Marland equivalent and so we timed the cycles. Instead of the 7-9 seconds per cycle achieved by Marland molds, this mold was operating at 24 seconds per cycle. We reasoned that the lower efficiency and higher cycle time of this mold was compensated for by lower capital investment and significantly lower labor costs at this particular location compared to that experienced by the majority of Marland customers. We asked our host what his cost/1,000 parts was and were stunned to learn that his cost exceeded the selling price for a comparable part from manufacturers employing Marland tools and more modern presses. If their per part cost from this installation exceeded the per part selling price for a more modern installation we asked, why are you purchasing your molds and other machinery from China. There were two perfectly sound business answers:
We also found, however, that the larger and more successful molders in this same country were making the transition from inexpensive startup with equipment from the lowest bidder to more capital intensive, but more profitable, operations with the most up-to-date equipment from the premier suppliers from all parts of the world. This was especially so for those companies that wished to compete in the high volume beverage and water closure markets. Since returning to Pittsfield, we have talked with customers about their thoughts on acquiring tools and equipment from China. There is no one story. Different molders have different business models, resources and concerns. Those molders who have molded products and/or molds with proprietary features are very reluctant to have tools made in China because of the well-publicized disregard for intellectual property rights. Molders of commodity products have found some cost savings in having tools made in China – particularly pre-production tools for generating parts for customer approval or proof of concept. Those molders who produce high volumes of molded parts where quality is an essential ingredient seem to shy away from China. Those companies that have proprietary products also tend to shy away from China because of their rather relaxed attitudes regarding intellectual property. We have asked ourselves the question, “How much cost differential in final per part cost can be made up by higher performance and quality?” Let’s assume the Hourly Operating Rate for the China equipment is $20, reflecting the lower equipment cost compared to $40/hour for the equipment provided by western suppliers. In spite of the major cost advantage of the equipment from China, it would cost $195,869/year less to produce 50 million closures. Over five years the savings would be almost one million dollars. The quality of Chinese products gets better every year and it is therefore reasonable to evaluate their offerings on a regular basis. At the K Show this year in Dusseldorf there was an impressive array of Chinese companies and products and one would be foolish not to consider their offerings. Cost of the mold or related equipment, however, should not be the sole criterion for selection. As discussed elsewhere in MARLAND NOTES, there are circumstances, “When The Lowest Price Costs More.” Written by:
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