Supplier Owned Tooling Credit Programs:
Supplier Owned Tooling (SOT) took root in the late 1990’s at the Vehicle Manufacturers – Tier 1 Parts Manufacturers level. SOT schemes are now starting to cascade down to the Tier 1 Parts – Tier 2 Parts level. As each Vehicle Manufacturer and each Parts Manufacturer is different, so is their SOT objectives and SOT schemes.
However, most of these SOT schemes were launched in the late 1990’s when the "bank vaults were wide open" to the autoparts industry, and access to capital to finance these assets could be drawn from the working capital credit facilities of the parts supplier with ease. With the access to credit in the automotive parts industry diminishing since 2000, especially for non-investment grade parts companies, the ability to finance SOT has decreased measurably. Despite a declining interest rate environment over the past few years the premium that parts suppliers have embedded in SOT interest cost has not decreased. It is not unusual to see SOT interest costs quoted in excess of 10% per annum.
T&E Capital is familiar with almost every SOT scheme in the market be it "piece price with a bullet", "piece price", "equal payment", "rented tooling", off balance sheet and on balance sheet schemes. T&E Capital professionals have designed and implemented numerous SOT Credit Programs to support various SOT schemes.
While each SOT Credit Program is designed to optimize the individual client’s priorities and objectives, the value proposal for a SOT Credit Program includes:
·
Cost reduction and "benchmarking" interest charges.· Improved liquidity in the supply base thereby reducing the
potential for disruptions from supplier financial failure.
· The Credit Program serves as a Financial Barometer of the buyer’s
supply base.
· Reduce launch risk and "tool ransom" issues.
· Allow a greater level of competition on tooling quoting by
removing and levelling the "ability to finance" barrier.
T&E Capital provides the SOLUTION tailored to the clients particular purchasing methodology; an articulated STRATEGY to implement (including: Process Mapping, Internal and External Program Guides, Frequently Asked Questions Guide,…), and provides the EXECUTION vital to operationalize and optimize the benefits.
If you are contemplating a SOT scheme and need to evaluate the impact of the SOT Scheme against costs of capital, T&E Capital provides "Advisory Services" to evaluate, develop, and operationalize SOT scheme in the most effective manner.