Written By: Paul Van Metre
Without winning a job in the first place, you have no opportunity to make a profit on it. So getting a new RFQ quoted quickly and getting a price and lead time back to your customer is essential. But it’s also really important to know that the price you quote is both a “correct” market price and will also provide you with enough margin to make a profit.
The key to getting that “correct” price is an accurate estimate of cost, with the appropriate margin added on top. But many shop owners don’t do this essential step. Rather they “wing it”, shoot high, and just get that RFQ quoted, especially in busy seasons. It’s not uncommon at all for a shop owner to tell us this is the way they quote a new RFQ:
Admittedly, it’s fast to come up with a price and lead time like that, but it’s highly risky and makes it more likely that the job will be a loser, late, or both. It’s so easy to overlook a very expensive detail that’ll guarantee a loss.
Manufacturers work too hard to lose money on jobs, and the reality is that preparing detailed quotes doesn’t have to be a burden. So why would you choose to play it fast and loose like that and risk losing money on the job?
Avoid the Pitfalls
It sucks to lose money on jobs. This underscores the importance of having a robust digital process embedded in something like a manufacturing ERP system. (Please excuse the shameless plug for ProShop). Knowing which pitfalls to avoid also goes a long way. Here’s a few things to keep in mind:
A system that guides you.
ProShop’s estimating process guides you through three easy steps to ensure that you don’t miss the little details that can derail your profitability.
What are we quoting, and who are we quoting it for? Let's jot down the part number, part name, revision, client, etc. Usually, most of this info can be found in the title block of the part drawing. This makes the estimate record easily identifiable in the future and ensures that we are indeed quoting the correct revision. That Part Number based estimating/quoting history will be permanently tied to any Work Orders, along with the actual job costing. This makes it very fast and easy to get a complete picture of any part.
How will that component or assembly be made? Write out the ACTUAL routing steps required to successfully complete the job. This would include planning steps, programming, raw stock prep, machine operations, outside processing, final inspection, shipping, and invoicing just to name a few.
ProShop makes this easy by allowing you to create custom estimating templates for YOUR typical manufacturing processes. In this case, just plug in your set-up and cycle times, and you’re off to the races! You can update the specifics of a part, in literally seconds or minutes.
Based on the quantity (or quantities) that you are quoting, what are your out-of-pocket costs? This might include items such as:
What kind of markup percentage do you want to place on those costs? Depending on the quantity being quoted, what percentage scrap rate do you want to account for in the event that you produce some bad parts? Those defaults can again be included in your templates so you don’t forget them.
After you’ve determined your part, process, and costs, you need to determine the margin that will maximize your profit, while still winning the job. Consider what the different price breaks might be so you’re competitive across the quantity range. ProShop allows you to adjust pricing on individual quantities whether you’re quoting 1, 5, 10, or volumes of 1,000 to 10,000. That granular control allows you to sharpen your pencil where needed maximize the profit/volume equation.
How we’ve simplified things:
Being detailed and thorough shouldn’t equate to taking a long time. ProShop’s estimating tools allow you to create detailed estimates in minutes by leveraging a rapid estimating template system. You can customize and select pricing options for nearly anything you can think of:
This allows you to create better quality quotes in less time, resulting in higher overall job profitability. When RFQs are being quickly responded to, it can have a tremendous impact on your win rates. Don’t just take our word for it:
- Jim Carr - President, CARR MACHINE & TOOL
- Kevin Richards - Co-Owner, JJR Engineering & Fabrication
Set The Team Up for Success:
When you quote from the hip and just throw out a price, one of the major downsides is that you need to reverse engineer your process if you do win the job. Trying to figure out your time budget for each operation, what you can pay for tooling, material, outside processes, etc. It can lead to a ton of work and is very error prone. It’ll likely be a messy, home-cooked meal every time.
ProShop’s novel approach to incorporating the estimating process as the foundation of the production workflow, leverages your quoting process for efficiency down the line. In pulling estimating information forward to order entry and the digital work order, ProShop eliminates the need to enter manufacturing data more than once. It’ll set you up for success with planning, scheduling, outside processes, and much more. Further to that, the ability to build out complex BOMs for assemblies to manage both commercial and manufactured sub-component costs is a game changer. Once awarded, those same BOMs can be used to allocate inventoried goods and drive procurement for purchased items.
So if getting more thorough, accurate estimates done in ½ to ⅓ of the time would help your shop win more, get in touch today to learn more about how ProShop ERP can be used to revolutionize your quoting process, and so much more!
Written by: Paul Van Metre
Have you ever been worried that your business might run out of cash? I know I’ve been there before!
Managing cash flow in a precision manufacturing business is often one of the most difficult but critical tasks. There are so many ways that it’s difficult. When you have to pay for a large order of raw materials, weeks before you invoice your customer for the same parts, or if you have a slow month with not enough revenue to cover expenses, or if a customer doesn’t pay on time, the pain can become acute fast. I still acutely remember the panic I felt when after 9/11, our shop’s workload dried up, and we nearly went bankrupt from running out of cash to pay our employees and vendors. Thankfully we barely scraped through!
Generating revenue for the business is one thing. Strategically and successfully managing cash is something else entirely. In the heat of running their operation, too many manufacturing business owners “wing-it” when it comes to managing their cash. They don’t always proactively make sure they won’t run out of cash - projecting when cash goes out and when it comes in. Are you one of them?
Daily machine shop operations can be expensive as it is, and much more so when you are trying to grow the company. Machine Shop businesses are capital-intensive by nature, and continual reinvestment is required to keep the business functional. This alone can place a significant burden on monthly cash flow. When late customer payments and large vendor bills get thrown into the mix, it can go from bad to worse.
What to do about it:
How ProShop Can Help?
ProShop was developed to help Machine Shop businesses thrive with integrated tools that help shops successfully manage cash flow. Digitally managing the production workflow allows for parallel processing of work orders so that job planning and production steps can be executed quickly and thoroughly, often shortening up-front office work from 4-10 days. Our suite of procurement tools give visibility to long lead items that need to be ordered in advance to avoid unnecessary delays. ProShop allows you to manage specific job quantity releases such that raw materials and other commercial items are purchased in exact quantities to the job, no sooner than needed. The ProShop schedule allows you to model one-piece-flow jobs, as well as allowing partials to be worked on and tracked easily on many operations at one time. Job costing tools tied to the digital work order help you understand which jobs are profitable, and which jobs aren’t. Get in touch today. We’d love to discuss how ProShop can help you reduce job costs, shorten lead times, and improve cash flow.