(Hint: Use a More Expensive Tool)

By Jack Lander

manufacturingOne of the main problems small suppliers have when trying to sell to large retailers is the inability to produce product at a cost low enough to leave a profit.

What to do?

Take another look at your tooling.

Nearly every process that is machine-intensive, rather than labor intensive, offers several options. One of the best examples of how increasing your tooling investment can lower your cost per part is that of plastic injection molding.

Molded plastic parts are used extensively in today’s products, and it pays to understand the options for molding and how each option determines the cost of the tooling and the cost of the parts it produces. In all cases, the following axiom applies:

The more expensive the tool, the lower the cost per part.

Here are examples of options for plastic injection molds:

  • Single-cavity aluminum mold
  • Four-cavity aluminum mold
  • Single-cavity steel mold
  • Four-cavity steel mold

A four-cavity steel mold will cost you roughly eight times more to tool than a single-cavity aluminum mold. But the price per part drops dramatically with the four-cavity steel mold.

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A cavity is the hollow part of the mold into which molten plastic is injected. Its internal surface shapes the part.

An aluminum mold is identical in function to a steel mold. An aluminum mold is less expensive than a steel mold, because aluminum machines and polishes a lot faster than steel.

However, a steel mold may last three or four times as long as an aluminum mold.  Thus, an aluminum mold is usually the better choice until your part’s design is perfected and your sales volume justifies its additional expense.

The cost of a part produced by each kind of mold depends mainly on the machine-time per piece (including the operator’s cost).

Popular consumer-product plastics, such as polypropylene, polyethylene and polystyrene, cost around a dollar a pound. And the cost of the plastic itself, per part, is about the same regardless of which mold option is used.

But the machine-time cost per piece varies mainly according to the number of cavities in the mold.

If the machine time is, say, 80 cents per minute, and the machine cycle time is half a minute, then the part from a single-cavity aluminum mold will cost 40 cents for the machine time, plus material. For argument’s sake, let’s say the material is 20 cents per part. So the total per-part cost, which includes material cost and machine time for a single-cavity mold, is 60 cents.

If we choose a four-cavity mold, rather than a single-cavity mold, the part cost drops big time.

Let’s assume that the cycle time is the same for the four-cavity mold as it is for the single-cavity mold. The plastic still costs us 20 cents, but the cost of half a minute of machine time (40 cents) is spread over four cavities, resulting in a machine-time cost of 10 cents. Our total per-part cost is now 30 cents – exactly half the cost if produced by a single-cavity mold.

Here’s where the math can get tricky.

A four-cavity aluminum mold is three times more expensive than a single-cavity aluminum mold. If a single-cavity aluminum mold is $5,000 to tool, a four-cavity aluminum mold would be $15,000.

Is the additional $10,000 a wise investment?

Let’s say you anticipate producing 36,000 units this year. Using the aluminum four-cavity mold, you save 30 cents per part for a total $10,800 for the year.

So the formula for you annual return on investment or ROI is:

Total saved for the year / Additional investment = ROI

$10,800 / 10,000 = 108 percent

Going with the four-cavity aluminum mold would seem to be a very good investment . . . if we have, or can get, the money.

If we calculate ROI for the single and four-cavity steel molds, the savings are the same as for the aluminum molds. But the additional investment of $27,000 is much higher, and the ROI, accordingly, much lower, but still attractive at 40 percent. (Please see accompanying chart.)

So, why not buy a four-cavity aluminum mold to begin with? The simple answer is that it costs three times as much as the single-cavity mold.

Another reason is that when starting out, you are seldom certain about a part’s design, and you should anticipate the need for a new mold to implement improvements.

And still another practical reason is that you may find your limited capital is better invested in marketing than lowering per-unit costs.

In any event, make the best early compromises as you can, and work toward the day when you are ready to step up to high-volume sales.

When you at last attempt to sell to “Giant-Mart,” you’ve got to consider upgrading your molding tool to get per-unit production costs much lower.

Remember, Giant-Mart is going to gobble about 70 percent of your product’s retail price. And if Giant-Mart sells your product at $14.95, and the catalogs have been selling it for $19.95, this drives your net even lower. So, the four-cavity mold is a given at this point.

Whether you choose aluminum or steel depends on the certainty of your relationship with Giant-Mart and on the availability of money.

But you may want to hold off using that pricey nine-cavity steel mold until you have it in writing that Giant-Mart wants upwards of a million units.

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Editor’s note: This article appears in the June 2010 print edition.