How many units of a model railroad product are needed for tooling to sell a run?

Model Railroader General Discussion (Model Railroader)
1

One question I have begun asking myself is in order for a manufacturer to justify the need to tool a new run of locomotive, or for a new run of rolling stock or other product related to model railroading how many preorders of units of said product are needed to go ahead with tooling?

I learned about this when I started following Rapido Trains Incs newsletters, Q&As and other videos. In one newsletter in which they talked about the CN & CP ten wheeler 4-6-0 steam locomotives, the ones next in line after the Royal Hudson in their icons of steam line.

Jason Shron, the president of Rapido said in last Rapido Q&A said that they where conered at the lack of preorders for the CN H6, which where half of the preorders for the CP D10 ten wheelers. I am guessing this is because we want to see a sample of the D10 and how a smaller HO Rapido steam loco operates, do they will know how the H6 will as well.

They also at one point showed conerned abouit the preorder numbers for Rapidos HO scale Rohr Turbo liner, and how one scheme being the demonstrator only had about eight preorders. I am glad the Rohr Turboliner is a go and the head of the project, Jordon can see his dream come true of seeing this Turboliner being made in HO scale for the first time.

I dont know if my question is something manufacturers can answer due to legal confidentiality laws, but I am hopping for an estimate.

Edit Note as of Friday July 27th, 2020 - I am a bit overwhelmed with all the replies on this thread I started. I will need time to read through them all to reply to some. Thank you for commenting none the less, I do appriciate it.

2

You need to amortize the production costs into the run, so the number will vary from one model to another.

Setting price point is all internal to each company.

If you know a Big Boy will sell 250,000 units, the tooling cost can be spread out among many models. If you know a B&O EM-1 will only sell 100,000 units, the cost per model will be higher.

The maufacturer needs to set the price point high enough to cover these costs, but not so high to limit sales.

In short, there is no way to answer the question.

-Kevin

3

It is indeed a trade secret. Jason is more open than most about roughly where they’re at on preorders. Not sure he posts exact numbers though?

The numbers will also vary widely even if they were discussed. A loco is a much higher ticket item than a freight car. Simple is cheaper than complex. Items that can be produced in multiple versions make a mold more able to produce future variants while some molds might produce an item that is essentially one variant to remain accurate.

Your question is a bit like asking how far you can push a string. Depnds on the string.

EDIT: I’m pretty sure Kevin’s numbers were just picked at random as examples. It’s more likely that a popular model like a Big Boy is closer to 2,500 in a run than 250,000. I suspect most runs of locos are likely well under 10,000 units. It’s a point that worth making, because while there are economies of scale in manufacturing, in this hobby it’s nowehere near large enough to expect lower pricing just because a unit is popular and sells well. These aren’t Walkmans (do kids even know what that is?) or microwaves.

4

Some brass runs are below 1000 units. In order to stay in business, those prices per unit have to be pretty steep. Not just profit, but re-investment and new capitalization.

For a first run, I would think most suppliers would want at least 8000 units sold. Thereafter, without having to pay for tooling, they might be satisfied with about half that many.

It’s just my guess. Those numbers might be too much too small.

5

Now that you mention Trade Secrets, it would be best for it to stay that way.

6

In manufacturing engineering (and I am sure in other disciplines too, although I am speaking just from my own training) there is a process called a break-even anaylsis. Its the methodology of deciding on what form of manufacturing can be used, how many units can sell on market, cost of labor, shipping, and lifetime of use for the manufacturing process before replacement. I am sure the exact calculations used by each manufacturer are indeed a trade secret, but its pretty easy to imagine that to make an injection molded product requires x-amount of unit sales before the product is profitable.

Again, different manufactuing methods have different break even anaylsis. A 3D Printer and a wood laser cutter are both relatively cheap, but they churn out a lower number of items per hour of operation than an injection molding machine would, and that needs to be factored. That is why a 3D printed design is so great for one off products and rare prototypes, they can be ordered ‘on-demand’ and produced in one off batches. Brass due to its lower rate of produciton can also make smaller batches of rarer prototypes, but expect the cost to be higher just to reach the break even point. Injection molding will churn out thousands of pieces in relatively fast time, but has a much higher initial investment into tooling that requires a larger audience to justify purchasing the model.

7

When the Hudsons arrived at the Rapido warehouse they showed a photo of them all. There were four Hudsons per carton, so I did a count of the pallets and cartons and guessed there were 2400 Hudsons. I am probably way off.

8

Maybe not, but it is a secret.

I do know the number of each miniature that Reaper Miniatures initially made in their “Bones” line of injection molded models made in China. The number was MUCH LOWER than what I would have guessed for the break-even point.

And they made a profit!

I have no way of knowing, but I would guess the up-front costs of injection plastic molding have come down.

-Kevin

9

Tooling for a brass model is trivial in cost compaired to casting and machining metal moulds for high pressure injection moulding of styrene or ABS. Brass manufacture depends on highly skilled but cheap labour having a skillset that goes back millennia. Those are the two main reasons brass were made offshore in cheaper labour markets preserving very old metalworking skills. The West still has such workers but they are very rare and very expensive comparatively speaking. Almost all “fine metalworking” not done by jewellers is done by machine in the West or not done.

The West can make the moulds but running very short runs of product (I.e. in the hundreds, not the millions of pieces) just cannot be done economically in the West except for military procurement or specialized prototype modelling.

The mould design is quite cheap now as is similar engineering for things like cars and airplanes. Relative to former times. It’s setting up and running the actual production that costs so much. Packaging, including labelling, and organizing the shipping are big cost inputs. It has been calculated that actual shipping costs of the packed container by container ship are essentially zero for each unit of just about anything, the cost has declined so much and so fast. The key to understanding how these costs add up is to realize that the cost of packing and unpacking the container is pretty much the same no matter how far that container travels. Once packed into that container the next real cost is unpacking the pieces for sale. Then the real costs of distribution mount up as you will realize if you have to pay any delivery charges on just one unit. A single HO locomotive in its own box might cost $25 just to get it from Ontario to me. It cost basically zero per unit to get from China to Vancouver by container ship.

It’s a crazy old world right now.

10

Years ago, industrialized countries agreed to subsidize shipping costs from under-industrialized countries. In effect, U.S. and Canadian taxpayers subsidize Chinese companies’ shipping costs. This is part of the Universal Postal Union.

The U.S. tried to end this last year, but as far as I know, we still are doing it. However, rates are supposedly being adjusted to correct this.

It costs more to mail a package from one U.S. city to another U.S. city than it costs a Chinese company to mail the same package from China to that city.

11

A few years ago I sold two small models on eBay. One went to Georgia, and the other to Norway.

It was less postage to ship the model to Norway.

-Kevin

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[Y] It served its purpose and now through ongoing negotiations is being changed one country at a time, albiet slowly as it is tied to so many factors.

Canada Post runs the postal systems of about 30 third world countries and that just shows what kind of complications have to be dealt with. It is a most complicated issue that falls within the pervues of foreign aid and/or trade. This is only one example of the intracacies of the situation. The Canadian Federal Government through Canada Post runs some foreign Post Offices as foreign aid as there is just no way a third world can run a profitable Post office.

I spent 36 years in world logistics and we often moved things by mail depending on what country(s) was involved. Cost were never a constant.

13

Twenty years ago I was talking to a manufacturer’s rep at a hobby train show about production in China. It cost his company $4 to send a kit produced in the USA to China for assembly and packaging, and return.

Interesting OP. I have been waiting for Intermountain to rerun ATSF stock cars for years. Those molds are already made, all Intermountain has to do is produce the cars. Their web site says they are accepting reservations for several runs of cars; but my dealer emailed me Friday saying that Intermountain has cancelled the runs, not enough demand.

14

A few facts without getting too specific about numbers I do know…

As mentioned above, there is the break even number, the minimum to support the tooling and setup costs at a price considered marketable.

Then there is the maximum economy of scale number, the number at which production does not get any cheaper.

That would be the ideal volume per run if there is suitable demand for the product.

Starting in the late 80’s, the cost of injection molding tooling has declined to an amazingly low level - but our models have gotten much more complex.

When LifeLike, Bachmann and Atlas began this off shore production of high detail, high quality plastic models 30 years ago, LifeLike and Bachmann in particular had deep pockets and invested in lots of inventory.

They were working on the old business model like Athearn and others had for years, and they had very large margins based on the exchange rate, cost to produce, and their willingness to buy at that “maximum economy of scale” volume.

That worked well for a while, they could afford to sit on that money and wait for stuff to sell.

Walthers did similar stuff, more with rolling stock and structure kits.

That was 30 years ago…now there are 30 years worth of new prototypes for people to want, in addition to those older prototypes that some are still interested in.

So even if the number of modelers has stayed the same or increased some, the demand for any one model is very likely much smaller than it was when the first Spectrum K4 or 2-8-0, or LifeLike GP7 hit the market.

And costs have risen in China faster than the rate of inflation, eating into those high margins of those early days.

Those high margins allowed them the luxury of sitting on lots of inventory.

From what I know, what I saw in person, and what I was told, in the early 90’s a typical “run” of a Proto2000 loco was in the five figures, and sometimes pretty well into the fi

15

Most Manufacturers today Only build Enough to cover orders. The new BTO Is the new mantra Of manufacturing Nobody wants to be stuck with inventory. If it sells out The better it is for the manufacturer or importer. The days of stocking nventory for 3-5 years is Long over .

Look at what scale trains does They do exactly What I mentioned above if There’s more demand for an item they do 1⁄2 3rd run.

Dave

16

Clearly true, but trust me, it is bad for the hobby.

Sheldon

17

Good for the hobby. Without this pre-order system nothing interesting would get made.

All manufacturing is changing to build to order. Houses are mostly built to order now. It fits really well with computerized manufacture of components for assembly. Car makers build only what is sold, mainly for dealer stock in North America but in other markets you order what you want and it gets put into the production line.

Everybody saves money if all that is made is already sold.

18

Well, hardly. China as well as other countries subsidize their postal systems which only looks like countries who don’t subsidize their own system any longer are now subsidizing them but that’s a really odd way to look at what was actually agreed upon.

Also bear in mind the whole system was invented by America.

19

I am not questioning how or why it has evolved to this.

But as the grumpy old men sit around and talk about the hobby dieing, and a handful of them ask “how can we get new people interested?”, I would submit this one simple fact.

Be it online or in a store, the fact that a beginner cannot easily buy a

20

the most important cost of a run is the new tooling, and the number of these …

if it sends the costs up astronomically, then the new run is dead in the water due to this costs being added on to the end user …