Written by: Paul Van Metre

In 2022, nearly every shop is dealing with dramatic increases in raw material prices. Some types of materials are going up faster than others, but nothing is immune to the disruptions in supply chain stemming from various Covid-19 supply issues, as well as the war in Ukraine, and the simultaneous increases in demand as the global economy recovers from the pandemic and demand is at all-time highs. It’s a recipe for high prices which can have a lot of negative effects on suppliers in the metalworking industry who make precision goods out of raw materials. However, there are some simple steps that can be taken to mitigate the risk of increases.

  1. Ensure all of your customer quotes include Terms & Conditions about your ability to pass through raw material price increases. Because all vendors are being affected by price hikes, the end customer will hopefully be understanding that this is entirely outside the control of its suppliers and be willing (possibly reluctantly) to pay for higher raw material prices. But you must include verbiage on all your quotes that your prices are only good for a fixed amount of time, or are quoted with material at a certain price in effect when the order is placed. Without this escape clause, you won’t have much to fall back on when you get quoted a higher price on your materials when you go to buy it. (If you find yourself dealing with price increases without any clauses to protect you, it’s always worth going back to your customers to see what they are willing to do to help you out.)
  2. Do a careful review of prices quoted vs. prices in effect when the order is placed. If you quoted a job 6 weeks ago at a given price for raw materials, and you did include some T&Cs about material prices, the next step is to ensure you aren’t letting those possible price increases slip through your fingers. That means including a formal process for comparing what the price was that you quoted your customer, and what your vendor will actually charge you when you place your order. If you don’t include this formal review as part of your documented and standardized process, you’re sure to forget and lose the opportunity to change prices upon contract confirmation. An order entry/confirmation checklist is a good way to ensure you don’t forget this important step. (Tip - for many buyers, price changes are easier to swallow, if you keep your unit price the same, and quote a variable “material surcharge” or something similar.  It allows them to maintain the unit price inside their ERP system that they are graded on, while giving a different GL code bucket in which to account for variability in material costs.)
  3. Get several quotes from your vendors.  Don’t assume that your favorite or closest vendor will always be your best option for buying raw materials. It’s a responsibility of you as the vendor to get at least 3 price quotes from your raw material suppliers. Ensure you document and save all those quotes in a way that is easy to retrieve and review, with quote numbers, lead times, expiration dates, etc. so you can cover your bases and ensure you have the information you need to decide where to buy that material if you win the order. Don’t be shy to have conversations with your vendors about their pricing in comparison to the other material quotes you’re receiving. If a “preferred” vendor is recently ending up with the highest quote where they weren’t previously, talk to them about the factors affecting them. See if there are options you can leverage to bring costs down (an example is blanket orders, talked about in item 5 below).
  4. Discuss creative options with your customers. Especially if you support production quantities of products that are made on a recurring basis, your customer should be able to provide some kind of forecast, or you can predict future demand based on historical demand (I fully understand this is an inexact art!). Those forecasts may be enough to put some action plans in place to mitigate material cost increases. Clients are often open to discussing creative ways they can control costs. They may be willing to have you pre-buy (ask if you can invoice for the materials in advance so you’re not floating the cash for months) the raw materials in advance, or to even buy the material themselves and have it shipped to your facility. The key here is to be completely transparent about what you’re seeing and experiencing. Most clients (at least the good ones worth keeping) want to ensure their vendors are financially stable and can continue to support them in the long term, and of course they want to keep costs down, so they have an incentive to work with their vendors to come up with options to minimize cost increases. A creative idea I recently heard: a shop proposed to their customer was to renegotiate a temporary reduction in the customer’s payment terms. The customer had a standard Net 60 payment terms with the shop, but the shop needed a more readily available cash flow to purchase some larger quantity material buys. An LTA with the customer wasn’t able to come together fast enough to leverage current market pricing before it increased, but the buyer COULD temporarily agree to Net 30 terms. The quicker turn on paid invoices helped the shop with their cash flow limitations and they were able to maintain pricing with the customer, which otherwise would have resulted in a re-quote when the customer re-ordered with them. Because the shop and the customer both had a good relationship & were transparent in their needs & limitations, they found a solution that worked for both of them. 
  5. Consider blanket or Kan-Ban orders with your vendors. Even if your customer isn’t willing to pre-buy or provide raw materials, there are often arrangements you can make with your material supplier to help reduce cost increases. Based on the forecast or history of your client orders, it may be worthwhile to place long term blanket orders with your vendors. If your customer forecasts or blanket orders with your company protects you for a certain amount of inventory or WIP, then it’s a pretty safe bet to do the same with your material vendors. If the purchase is at your risk, then it’s worth weighing the risks of possible client cancellations or changes vs the cost savings of locking in prices before they increase in the future.

Hopefully some of these 5 tips will help you to recover possible increases in raw material prices, or protect you from future increases. If I could summarize the key element it would be communication. Communicate with your clients and vendors and within your own team. The more discussions you have, and share transparently, the more solutions will likely come to the surface. Your customers do have a vested interest in making sure that the long term health of their supply chain is intact. And if they don’t seem to feel that way, it’s worth considering if they are a customer you want to have in the long run. (See our recent blog post about this)

How Can ProShop Help?
There are a number of ways that ProShop can help with the 5 points above. Here they are in order: 

  1. ProShop has a fully configurable quote T&C section with customizable lines that can be included in all new quotes and checked or unchecked to include or not. Or they can be copied from templates within the estimating module.  So specific clauses about material escalations can be included for many use cases to make sure you’ve covered all the bases.
  2. When contract review is being performed, you can have specific team members automatically notified when new customer POs are created, or Work Orders are created.  Because there are no paper records needed, that review of price quoted vs. current material price can happen immediately.  It’s also a matter of clicking one icon to get the entire purchase history of a material so you can easily see how the price has changed over time. And of course, you can add the requirement to your WO checklist to make sure it gets done in the first place!
  3. Every purchased item can have multiple approved vendors and easy places to document their prices, as well as attach their quotes so they are always at hand, a week or a year later. As always, attached files are securely stored in our proprietary storage system for safety and easy retrieval from only approved users.
  4. When it comes to providing transparency to your clients, the data is all right there and connected in a way that makes it easy to find and retrieve. We can’t make the phone call for you, but we’ll help you back up the conversations with data. If you can get them to provide customer-furnished-material, you can easily track the incoming receipt of that material and all the certifications it may come with, for automatic retrieval and collation when it’s time to ship the product back to them.
  5. You can issue blanket material POs to your vendors, with the correct dates and quantities you want to receive. When each shipment comes in, it’s simple to track the certs, receive the shipment and generate a vendor bill for your AP process. And any future changes and adjustments are easy to make.

Written by: Paul Van Metre

Every shop I know can’t find enough skilled staff like machinists & inspectors today. And, it's getting worse! I’ve been hearing this from nearly every shop I speak with in the past year. I recently attended the annual NTMA Engage Conference where I saw an AMAZING talk on this exact topic. It was given by Chris Czarnik, who wrote the book Winning the War for Talent. His ideas about hiring and the labor market are so spot on, and many of the ideas in this post come from his talk. They are very much in alignment with the practices we used in my shop, and today at ProShop. If you have an hour to watch it, I highly recommend it! It’s insightful and funny.

It’s a certainty that there will not be enough people entering the workforce in the coming years to fill all the positions - making it even worse than it is today.  Which puts companies in a position to need to get creative in how they recruit, onboard, train and grow the talent on their teams. Many companies are stuck in the past with their hiring practices, and the need to update their processes couldn’t be more important. They post a help wanted ad in their local Craigslist, Indeed, and numerous other places. They describe the minimum requirements, pay ranges, and preferred experience. And there they get lost in the sea of dozens or hundreds of other job listings for the same type of jobs in their region. Does this sound like your shop? How is that working for you? Probably not very well. As Chris recommends, pull out your phone and look for your ads. What do you find? It’ll probably be an eye opener.

Job seekers are humans with their own personalities, desires, needs and concerns.  As the Great Resignation has shown us, people are tired of working in jobs they don’t like and they want more meaningful work. You can likely provide that work for the right people. So making job ads that speak to them, draw their attention, and stand out from the crowd is vitally important. Once you’ve attracted their attention, you have to deliver the goods, some of which we’ve discussed in prior blog posts on how to attract employees, and mitigate the lack of machinists

Start with learning more about your current employees. Ask what they love to do in their spare time, what jobs they had in the past that they loved or hated. Do they like working on their motorcycle or woodworking projects, or playing video games?  Study and learn about various personality profiles like Meyers Briggs and DISC. As Chris points out, ISTP types (aka Virtuosos) often make great machinists! (I happen to be one myself). They are logical, like working with their hands, good under stress, are independent and love to solve problems.  Sounds like a good machinist in the making?? You bet! So use that language in your job postings! It’ll help your listings jump off the screen and stand out from the rest.

Aside from piquing their interest based on their hobbies and interests, it makes sense to appeal to them on a human level. As our incredibly wise Chief Human Resources Officer Adrienne always tells us, “People are attracted to companies where the corporate culture reflects the values they hold as individuals. People want to believe in, and join, a company that respects them in the ways that are well-aligned and meaningful to them.” It’s important to figure out what you can offer your employees in terms of a relationship; is it loyalty? Is it integrity? Is it a fun work place? And then you deliver on that consistently. People are your most precious resource, and if they know that right from the very first interview, you’re sure to top their charts. It’s worked for us; we’ve more than doubled our team in the pandemic years.

There are lots more great tips in Chris’s speech, so I’d recommend watching it. For the relatively small time investment of learning more about doing this well, the returns you’ll see in improved recruitment will make a huge difference in your company’s ability to scale with the staff you need to serve your clients.

How can ProShop Help?
Honestly, probably not as much in this area as with many others.  Once you’ve recruited some great people, we can help you provide a very well structured onboarding and training process for new employees with our training module. We can help you provide a modern paper-free shop floor, eliminating the frustrations of lost travelers, missing setup notes, and tribal knowledge. When you can attract enough of the right fit employees, and provide them with an enjoyable work environment and show you care about their development, you’re one step ahead of many other shops and can help your shop and all its various stakeholders to thrive.

Written by: Paul Van Metre

One of the most impactful things any shop can do to ensure success is to identify and focus their efforts on clients that are a perfect fit for them. There are many attributes which collectively feed into the equation of whether a customer is a good fit or not. Every shop has types of parts and work they are very good at, and things that aren’t in their wheelhouse. Maybe your shop is really good at large inconel castings in low volume, maybe it’s high volume Swiss parts for aerospace applications, perhaps your shop is a bit of a generalist, or maybe you specialize in quick turn small intricate parts requiring lots of tiny cutters. Whatever the answer is, there are companies out there that need parts that match your exact type of speciality, and there are clients who don’t need those kinds of parts. The more you can focus on the types of parts and clients who align with your speciality, the more profitable your shop will be. 

Your Best Fit Customers are at the Center of the Bullseye
I often think of client fit as being represented by a bullseye. The outer rings of a bullseye are the types of clients that are a pretty good fit, but there may be aspects of the relationship that are not as good a fit. Maybe it’s their need for short lead times, price sensitivity, cosmetic parts, materials, or the fact that they send purchase order changes (POC) all the time. Or maybe the buyers are just jerks! (That’s a thing…) Sometimes you’ll have a client that is a great fit in the areas that matter most, but not in all areas - as all attributes aren’t created equally. Maybe a client makes revision changes a lot, but they always pay well for the hassle of dealing with them, so they are a very profitable client. The very center of the bullseye represents your perfect fit clients. Those clients that are aligned with all the things you are best at and care about the most. You know what it’s like to work with perfect fit clients - it’s awesome!! And, every shop knows what it’s like to work with clients who are not a good fit for them. It can really suck!

I recently ran across some photos and videos from years ago at my old shop - Pro CNC - that reminded me how seriously we took this topic!! I certainly remembered that we focused on always aligning ourselves with good fit clients, but I had forgotten that we had taken it to the level of creating scorecards and grading each client on multiple attributes. As you can see in this scorecard below, we have graded this client on 15 different attributes, plus also scoring them on revenue scale ($1.25M/year in this case) and consistency (very), collectability (no issues), industry (aerospace and defense), and even what tier in the supply chain they are in (1-3). Ultimately we put them into our “Partners” category - the highest category of 5 we used. It’s a pretty in-depth scorecard, and reveals just how serious we were about really understanding good fit clients.

Create Client Scorecards
On this scorecard you can see the following categories which we graded on an A-F scale. This particular client was one of our largest and best fit clients. They got an A or B in every category.

Communicate Client Scores to The Team
As I watched the video I saw myself addressing our team at one of our monthly all-company staff meetings. I was describing how some of our clients, while generally acknowledged as a PITA (pain in the ass), were actually very profitable clients overall. Having a discussion with the team about why it’s worthwhile to acknowledge that and understand which clients are really driving profit in your shop, which is one of the most important aspects of a client, is really important for team alignment and establishing trust between the sales department and the shop.

I went on to describe how grading and categorizing these clients really helped us to understand what made a good fit client for us, so we could proactively seek out other similar clients. While this process certainly takes effort and is a long term project, it’s definitely worth doing, as it will eventually lead to having a greater percentage of great fit clients and filtering out the ones who aren’t a good fit. I think every shop knows how much of a drag on resources it can be to manage a client who isn’t a good fit. It’s exhausting and distracts you from serving your best clients!

Grading Clients for any kind of Company
As an aside, we’ve done a similar thing here at Pro Shop (every type of company should grade their clients), identifying the types of shops who are a great fit for us, and the types of shops we don’t want to work with. There are many reasons why it matters so deeply that we only work with good fit clients. Primarily we want to have them be happy and successful, and it’s very hard on our team when it’s not a good fit. We’d much rather tell a company that there are other systems that will be a better fit for them than ProShop will be, if we believe they won’t be a good fit for our product and working with our team. We’d much rather turn down an order than take their money and have the experience go poorly for both of us. For us, the best alignment comes from the subjective side rather than the objective side of the equation. We know we’re great at CNC machining companies who are in regulated industries like aerospace, defense and medical, but it’s possible to have company that fits those criteria perfectly, but is a terrible fit because the leadership of the company isn’t aligned, or the company lacks discipline to follow through effectively on all the tasks required to adopt a new shop management solution like ProShop. When the cultural fit isn’t there, it’s best to avoid those deals with a 10 foot pole.  Everyone will be happier in the long run. Here is the list of qualities that our best fit clients exhibit: They are eager, aligned, accommodating, friendly, humble, open to learning, adaptable, interested in continuous improvement, good communicators, have reasonable expectations, are interested in LEAN concepts/waste reduction, well organized, good at execution, collaborative, not adverse to change, and not adversarial. 

We created a whole webinar on this topic, check it out below!

How Can ProShop Help?
Much of these things are going to be things that don’t have a lot of crossover with an ERP system, but there are some attributes that can and should be tracked in your ERP system. Revenue and profitability is certainly one of the most important, and ProShop does job costing better than any other system we’ve run across. It’s easy to get Net Profit of every job, down to the penny, and summarize what clients are the most profitable. You can also view a dashboard of revenue by client, and by industry, so you can see which clients and industries your revenue is coming from. It’s also very straightforward to report which clients have the most rejections, internally and externally so you can more easily score clients in these areas. ProShop also has areas within each client record where notes can be kept about individual contacts, the company overall, and even a top secret notes area, only visible to certain users, where all the more sensitive information can be kept about each client.

When long term effort is put into identifying, scoring and finding more clients that are a good fit for your business, it’s inevitable that you will have happier clients, happier employees, and a more profitable business. So start with developing some criteria that matter most to your shop and see how your clients rank. It’s the first step to getting well aligned with great fit clients!

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