What does this worrying term about mold tooling ownership mean?
- The buyer pays the supplier for fabricating the tooling for them.
- The buyer is expected to keep buying the plastic parts from the supplier, and that’s where the supplier expects to make most of their profit.
- If the buyer decides to pull their tooling out (and start plastic part production somewhere else), the supplier will not allow it until an extra 15% is paid on top of the initial tooling price. (In some cases we’ve seen, it’s even as high as 30%, not 15%).
What are the different expectations of buyer and supplier regarding the tooling?
Let’s look at the mold tooling ownership issue from both sides of the table:
What the (Chinese) plastic supplier is thinking about ownership of the tooling
- We design the tooling based on all our experience & knowledge. There is 1 key person in our company who worked on this and paid careful attention to the design to minimize the likelihood of defects as well as the amount of labor needed, and, finally, this greatly benefits mass production (quality and cost control).
- Tooling design & fabrication are labor and machine-intensive processes, and it is a one-off development work (where the margin should be higher than that of mass production).
- In China, the normal approach is that a plastic supplier prepares the tooling and then uses that tooling for mass production in their own facility. That’s why the quotation for the tooling is not high. It is far, far lower in China than in other countries. That’s because the plastic supplier makes the margin on mass production of parts, not on the tooling.
- If you pull the tooling out, it is not fair to the plastic supplier, who worked for no gain. You should have expressed your intentions clearly from the start. The quote would have been higher if the plan was to do injection molding somewhere else, and the buyer should pay for that higher quote in that case.
What the buyer is thinking about mold tooling ownership
- If I paid for the tooling design, I should be given (and own) the tooling CAD drawings in native format. Why is that not the case? The supplier is keeping them secret to prevent me from working with another supplier, but why should I accept that if I paid for it?
- If I paid for tooling fabrication and it included the initial trials, I should have the right to know all the setup parameters as well as the exact brand of plastic polymer used. Again, is such a secretive approach acceptable? It’s our product, not the supplier’s product, but suddenly it feels like it’s not fully our own product any more.
- If I own 100% of all intellectual property (IP) rights related to the tooling, I expect to be able to do whatever I want with it, right? Why would the supplier state that we own all IP, but still want to act as if they own the tooling? That makes no sense.
- If you bump the price up without reasonable explanations, or if you fail to deliver the quality we expect, we should be able to switch to another supplier, and we should not have to pay anything for that right!
- If you charge us 115 but you only include 100 in your quotation, that’s just a way to confuse people. That’s not a good approach. Instead, you should write 115 on the quotation and write that only 100 needs to be wired at this point, and you should make it clear what happens to the other 15. If all suppliers followed this method, it would allow us to compare the quotations as ‘apples to apples’ and it would prevent a lot of confusion and bad feelings.
So, what should you do?
Despite the behavior of some suppliers, a clear and enforceable manufacturing agreement in Chinese and written by a lawyer specializing in Chinese law that outlines that you own the IP relating to the mold tooling and have the right to pull it out at your discretion is a must, that’s your ultimate fallback that makes your requirements clear.
Meeting them face-to-face during the sourcing process and making it clear that you want to pay for the tooling and its IP in totality and that you don’t wish or expect them to invest might help to make your position clear and avoid ‘misunderstandings’ later on.
You may also reduce the risks of your tooling being held hostage by getting the supplier into the habit of you pulling your tooling out between productions. If this is your normal SOP, they have less reason to question you or play games if and when you decide to pull it for the last time and switch to a new supplier. It also means that a trusted third party in China can keep possession of the tooling during its downtime, reducing the risks of it being used for unauthorized production runs with the parts or products going who-knows-where (and we provide this solution to you over at Sofeast).