Purchasing advice: The 500-mile rule, or “You ship molds and parts HOW far?”

The "500 mile rule" in plastics manufacturing is probably a subset of Murphy's Laws:  (1) For plastic parts: The bulk density of plastic parts is too light to ship parts farther than 500 miles because the cost of freight added to the manufactured cost would point more profitably to a molder closer to the customer. (2) For molds: Shipping and insuring a mold to travel more than 500 miles usually alters the overall mold cost enough to justify a local source.  (2.a) Mold repairs, warranty work, etc. take too long and become too expensive because of freight costs.

Back to the beginning: The potential customer sends you a request for quote (RFQ) and you submit your quote. The buyer gathers in all of the RFQs and other information he can find, and looks at the mold cost and the part prices. Somewhere in his lizard-buyer-brain he picks the successful vendor, calls him up, haggles both the mold and price down a little more; and places the job. 

The buyer does not consider (most of the time) the cost of freight to his facility, because that's a problem for the supply chain management specialists, expeditors, and his company's Shipping & Receiving department. The accounting department will sweep any excess costs under the rug by labeling it an 'explainable variance'.

When I worked in the toy industry, the profitability of a potential new product was based on 'landed cost' - what it took to put a master carton of product in the distribution center.  Regardless of the toy, if the freight costs chewed up enough profit, the project didn't fly.

There were two recent posts in the PLASTICS TODAY Injection Molding Forum.  The first post apparently was from a guy sending a mold for updating and revisions to a mold maker in Toronto from somewhere in the Southern U.S.A. Last year he shipped a similar mold one-way for $2000. Today, with surcharges, fuel uplifts, and just-for-the-heck-of it charges, the cost of freight has more than doubled. 

The second post in the Forum was from a processor in China. His mold cost and part prices got him the contract to mold bumpers for an automotive manufacturer in Spain.  The customer wanted three shipments of 200 sample bumpers for mold and production approvals immediately. Apparently the molder quoted samples for free, thinking it would be less than a dozen bumpers shipped airfreight.  Unfortunately for him, each shipment (by air) would cost him €40,000 ($56,500). Oops.

With transportation costs at the mercy of the oil companies, the "offshore" bargain prices aren't really all that competitive when you ship to a port of entry and then put everything on a truck to get to your front door.

The good news is that every problem always presents an opportunity.

The next time you get an RQF, look at your terms. Ultimately the customer always pays the freight. The molder's sale price plus the fright cost is the LANDED COST. When presenting your quote to a buyer, point out what the savings in freight costs would be from, for example, Singapore when compared to your facility in Lexington, KY to his in Paducah, KY.  Gently ask him to consider the overall cost before he picks his supplier. If he says, "Freight isn't my problem," then talk to his boss.

As a molder, when purchasing tooling, if you are in Omaha, while your best mold maker might be in Toronto (1600 miles) or Los Angeles (1400 miles), then hauling a 4000-lb mold back and forth might start you considering a few shops in Kansas City (195 miles).  Round-trip might save you $10K in freight costs when buying tools.

Being a local supplier has many other advantages for your customer:

The downside to the customer being local is that, if he has a travel bug, you've killed it. If you're close to him, then gone is the perk of multi-day "Road Trip" junkets for the customer's engineering and purchasing people, along with their airline miles for future vacations. Your customer's upper management will quickly see an increase in their bonus checks if you can point this out.

Talking about overall costs makes a nice 'brown bag lunch' presentation to your customer's buyers and engineers, or a dinner talk for the Purchasing Managers Association monthly meeting to re-evaluate their supplier base on freight alone. Since you are humble enough to be a 'local' supplier, you might seem like the right choice for the next set of RFQs.

Look at your customers. Draw a 500-mile radius around your plant. This is where 80-90% of your customers and your suppliers should be. If not, think local, not global.

Think about it.