The challenges of niche production

Automotive Design & Production,  Nov, 2005  by John Cleveland

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* LOWER COST TOOLING. Tooling costs are one of the largest barriers to profitability in the low-volume niche. The "perfection" goal in tooling is to have the same tooling cost per part, regardless of volume. For most volumes and most components, low-volume production is far from this goal. As a result, tooling costs (both for fabrication and assembly) add significantly to the cost of the niche vehicle. In some cases, prototype tooling that has been able to be used for total part production (over the entire life of the tool, not on a per-year basis) of a few thousand parts can be "fortified" to reliably produce parts in the 15,000 to 20,000 range. And at the top end, high-volume tooling that is designed to run 750,000 or 1,000,000+ parts can be "leaned down" to cost effectively run for several hundred thousand parts. There is a "missing middle" where effective tooling solutions have not yet been found.

Suppliers who are interested in getting positioned in this market will either need to have internal tooling capabilities or partner with tooling firms that have capabilities in some of the emerging short-run tooling technologies, such as aluminum molds; epoxy and Kirksite dies; laminated dies and molds; direct metal deposition; and sprayed metal tooling. They will also have to be adept at calculating the "cost curve" (i.e., cost per volume based on forming technique) for their components. Standard costing systems will not be much use in this new environment.

* DIFFERENT FORMING TECHNIQUES. Along with the new tooling technologies come a variety of new forming processes that are likely to be more cost effective than traditional stamping and injection molding at lower volumes, including sheet hydroforming (which is more widespread in Asia than here in North America, but is beginning to gain favor for short run applications); SMC; liquid impact forming; and roll forming.

* FLEXIBLE PROCESSES. The run rates of niche vehicles don't allow for fixed assembly tooling costs for each model. Instead, they favor more manual methods, as well as flexible automation that can be easily reprogrammed, or automation components that can be easily reused (the automation version of "communization and reuse" of components).

As with any emerging market, there are significant risks for suppliers in the niche vehicle segment. With low volumes, there is a lot less production across which to amortize development costs--so mistakes can be very costly and quickly eat up margins. And yet, because of the experimental nature of the work, mistakes will be inevitable. This means it is very important to have highly collaborative and partnership-based relationships with customers (whether the Tier 1's or the OEMs) in this segment. The upside of markets like this, of course, is that if the market does take off, the "early adopters" have an enormous competitive advantage in know-how and relationships compared to the late-comers. Our sense is that this is a market that will increase rather than decrease, and is a good investment for innovation-oriented suppliers.