Manufacturers, especially those of consumer goods, periodically revise the design of their products to enhance their appeal. The product cycle is the period of time between the corporate decision to introduce a new product line, the design of particular product components, the manufacture of the tooling required to produce the components, and the beginning of full-scale production. Competitive market pressures to bring new products to market more quickly has served to reduce the product cycle in the three largest TDM consuming industries: motor vehicles, appliances, and electronics and
telecommunications. Being first to market allows manufacturers to gain a market advantage over competitors and is considered to be essential in building product loyalty among consumers, while also building market leadership in a product market.
Conversations with market participants in the motor vehicle industry indicate that a decade ago, automotive product cycles lasted as long as 60 months. However, increasing competition has forced OEMs to shorten the motor vehicle development cycle to 30 to 36 months. As with automobiles, a similar desire to get new products to market faster is leading to a compression of product cycles by appliance OEMs, although product cycles for appliances are typically only 6-12 months.101 Similarly, the product cycle for new
electronics and telecommunications products has declined from 2-3 years only 5 years ago to as little as 6 months at present.102
The market dynamics for medical and packaging products are somewhat different. Most product design changes in medical devices are a result of efforts by the equipment supplier to improve the performance of the medical device, often in response to staff in the medical delivery business requesting a change in the design of an instrument, such as a syringe or catheter. Product change in the medical supply industry appears to run approximately 3 years. Typically, a packaging manufacturer will change the design of a product package to attract consumer attention or to fit the functional requirements of a change in product configuration. Product cycles for the plastic packaging and medical equipment industries have also become more compressed during the past decade for similar reasons, although not as dramatically, as in the motor vehicle and appliance industries.
The compression of product cycles has put pressure on component suppliers and toolmakers to reduce the lead time required to both design and produce components and associated tooling, since the amount of time devoted to tooling design and production accounts for a significant part of the production cycle. The ability of tooling suppliers to match their production of tooling to shortened lead times has become a critical sourcing factor, especially for firms supplying the automotive and appliance industries.103 Tooling
customers often insist that suppliers take active steps, including capital investment in the latest technologies, to improve plant efficiency on an annual basis, thus demonstrating
104 U.S. tooling and automotive industry officials, telephone interviews by USITC staff, Feb.-
Aug. 2002.
105 U.S. tooling and automotive and appliance industry officials, telephone interviews by
USITC staff, Feb.-Aug. 2002.
106 This effort to reduce product cycle and lead times has been aided by improvements in
CAD/CAM systems that permit quicker tooling design and manufacturing and by increases in machine tool speed. U.S. tooling and automotive industry officials, telephone interviews by USITC staff, Feb.-Aug. 2002.
107 U.S. tooling and appliance industry officials, telephone interviews by USITC staff, Feb.-
Aug. 2002.
108 For the introduction of new medical products requiring FDA approval, the product cycle
will typically be longer than normal.
3-30
that they are in a position to continue to reduce lead times and product costs.104 These
customers also monitor the ongoing commitment to invest in human resources skills, computer technology, and sophisticated machining equipment that would enable a tooling supplier to continue to improve tooling design and production capabilities while adapting to increasingly shorter lead times.105
The lead time a toolmaker has had to complete an automotive tooling contract has declined from as much as 1 to 2 years just 5 years ago to 9 months or less at present.106
Compressed appliance product cycles have diminished the period of time allotted for the completion of the tooling from a period of as long as 30 weeks only a few years ago, to as little as 16 weeks at present.107 An informal survey of the plastics packaging and
medical equipment industries indicates that the required lead time to complete the design and production of molds has declined to nearly 10 to12 weeks, from a lead time of 18 to 24 weeks a decade ago.108
The compression of lead times is magnified if the product is subject to change orders. During the product cycle, the design of a component may go through a number of changes before final delivery of the tooling and commencement of full-scale production for the end product. A tooling manufacturer must have the technical and engineering capability to alter or rework tooling to accommodate component change orders and do so quickly enough to meet tight delivery schedules. As product cycles have shortened, changes in tooling design become more common to accommodate the updated component design.
According to industry contacts, U.S. OEMs are more prone than their Japanese competitors to significantly alter the design of their components. U.S.-owned manufacturers tend to place a greater emphasis on the styling of their vehicles as a consumer selling point. Large variations in component design tend to require more complex tooling to produce these components, thus leading to more frequent tool change orders and higher tooling costs for vehicles made by U.S.-owned manufacturers. These sources indicate that change orders for tooling used in Japanese vehicles are relatively uncommon because they are more “manufacturing-friendly” as requirements for complex tooling are minimized due to the relative simplicity of product design.
In a typical product cycle, change orders may account for up to an additional 15 to 20 percent of the time allocated for the completion of a tooling contract and account for as
109 U.S. tooling and automotive industry officials, telephone interviews by USITC staff, Feb.-
Aug. 2002.
110 Rasmussen, transcript of the hearing, pp. 145-146.
111 Although it is clear that suppliers have followed foreign automakers’ establishment of
production facilities in the United States, it is unclear the extent to which this has occurred in the tooling sector.
112 Responding companies reported total 2001 sales of $1.5 billion.
113 Compiled from responses to the Commission’s producers’ questionnaire.
114 General Motors, Oxford Automotive, Collins & Aikman, Daimler Chrysler, and Ford.
much as 25 percent of a tooling manufacturer’s revenues.109 Often times, a tooling
manufacturer in the United States will be asked to modify tooling originally
manufactured by another manufacturer to meet a change order. This often occurs when tooling is purchased from off-shore sources since change orders often occur after the tooling is shipped from a remote location to the United States.110