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:

• Material - $2500
• Labor - 5 Days @ $1000/day
• Total Cost - $7500.00 
• Lead Time - 7 Weeks

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: 

• Stop underestimating set-up and cycle times.
  • The best case scenario you sometimes estimate time for isn’t always realistic. Time tracking against set-up and production is a great way to understand the ACTUAL times that jobs take. 

• Don’t miss costs for custom fixturing, soft jaws, or unique workholding requirements.
  • A unique workholding approach requires labor-time and money spent on the materials needed to produce those soft jaws or a custom fixture.

• Be sure to account for ALL of the steps in the manufacturing process.
  • Don’t forget the time required to load and unload parts into the machine, complete in-process checks, and ship parts for outside processing. You need to account for the ENTIRE process from A to Z.

• Forgetting to include costs for job-specific tooling.
  • The first job I quoted for a big new customer required a 19” deep ⅝” diameter through-hole in 316 stainless. I forgot to account for the drill in the estimate. We broke three of them during the job. The thru-coolant carbide drill costs about $700 per piece. Yikes! 

• Excluding shipping costs.
  • Shipping might be required to and from an outside process, as well as final shipping costs to the customer. Don’t miss these costs!

• Being too optimistic about the costs of raw materials and other commercial goods needed for the job.
  • It's often worth going the extra mile to get updated pricing from your vendor rather than “winging it” based on previous pricing. Material pricing has been a rollercoaster lately.

• Being in a hurry.
  • This goes without saying, but it's easy to miss important details when you are in a rush. Those details almost always come back to bite you!

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. 

1. Define the part. 

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.

2. Define the manufacturing process

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. 

• Estimate the set-up times required for each step.
• Input cycle times for each step including load and unload times. 
• Will time be required to complete and record in-process quality checks? 
• Will there be any non-recurring time investment for a first run of a new part?
• Define which resources and machines would ideally be utilized for each of those steps.

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.

3. Define the out-of-pocket costs for materials. 

Based on the quantity (or quantities) that you are quoting, what are your out-of-pocket costs? This might include items such as: 

• Raw material. 
• Job-specific tooling. 
• Shipping charges. 
• Outside processing charges for heat treat, plating, anodize, etc. 
• Commercial items like fasteners and hardware.
• Custom workholding such as soft-jaws, fixtures, etc.

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.

4.  Define your price.

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: 

• Different machines and the rates you want to charge for each 
• Labor activities like programming, setup, running, and inspection
• Different markups on materials and commercial items
• Overhead rates
• Sales commissions
• and much more! 

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:

"I would say we are doing estimates 300% faster than we were doing them before."

- Jim Carr - President, CARR MACHINE & TOOL

"For our estimating process, ProShop has completely revolutionized it. What that means is we have much more accurate and thorough estimates, but we get them done in half the time."

- 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:

1. Shorten your lead times
   
   One of the best ways to improve cash flow is by decreasing your lead times. When you do, you are able to invoice and receive payment sooner. When the window of time between purchasing materials and tooling for a job and getting paid for the completed work is minimized, risks related to cash flow are mitigated. Here are some supporting ideas to consider when trying to shorten lead times: 
   
   • Shorten the job-planning process - When you have a process in place whereby the planning process can be thoroughly completed in a shorter amount of time, the job can be executed and completed sooner with fewer mistakes. Our recent blog series titled “Focus on the right stuff” can help guide you on this further.
     
   • Implement a digital work order system that allows for the parallel processing of jobs - When jobs are managed in a digital environment, jobs can be simultaneously worked on by different teams. Planners, programmers, and purchasers can completetasks relating to the same job simultaneously, increasing productivity and efficiency. This increases throughput, gets jobs completed quicker, and avoids having too many jobs fall onto the dreaded “back burner” (among other benefits!)  
     
   • Embrace proactive procurement practices - Missed details in the planning process can also play into cash flow issues. When long lead items like special tools or gages are missed or aren’t ordered early enough, this can lead to late delivery and invoicing on jobs. When this occurs on a job which requires a large up-front purchase of raw materials, the impact from delayed invoicing can be significant. Sometimes the impact on customer relationships can be even worse. 
     
   • Have a system for information transfer that flows through the production process - When jobs are planned for and managed in a digital environment, concise operation-specific instructions can be provided so that important details aren't missed. When customer and job specific requirements are provided to the production teams, it greatly reduces the opportunity for errors and scrap, ensuring that the job is completed as required in a timely fashion. Read through our recent blog, “It's all about Information Transfer,” if you haven’t already done so!
      
   • Get jobs out faster - One-piece flow is one of the best ways to dramatically shorten lead time. Consider this example: If you have a part with 2 operations, and you batch and queue each operation separately, the amount of time you have WIP sitting on your floor can be very long. If you have an order of 100 parts, with two 30-minute cycles, for an hour of total cycle time, and you batch them, it would take 50 hours per operation to finish the parts.  Assuming a 1 hour setup time for each, the whole order of finished parts won’t come off the machine until over 100 hours after you start your first setup. On a single shift, that is nearly 2.5 weeks. Contrast that with one-piece flow, where you set up both operations at once on 2 spindles, you’ll start getting finished parts off within about 3-4 hours of your first setup, and the whole job will finish in half the time, allowing you to ship and invoice partials, the same day. We had a client tell us that moving to this model allowed him to invoice some very large jobs nearly a month sooner than typical, significantly improving his cash flow.
     
2. Invoice sooner and make it easy to get paid
   
   Do what you can to invoice as quickly as possible. Don’t batch your invoicing one day a week - send them every day! Send out customer statements and payment reminders to mitigate late payments from customers. Make it as easy as possible for your customers to issue payments. You might even consider accepting credit card payments. Nobody likes paying credit card fees, but sometimes it might be favorable to lose 3% on an invoice rather than wait for a late payment. Also, don’t extend credit at all to any new customers without a credit check.
   
3. Negotiate progress payments on larger projects
   
   When dealing with large jobs, consider working with the customer to negotiate progress payments, a down payment, or at least payment for the raw materials in advance. If you don’t, you’ll likely have to pay your invoice for raw materials and commercial items well before getting paid for the job itself, potentially leaving you with a cash flow problem. Many clients will be open to this if they’re a good partner and care about your success as a vendor for them.
   
4. Schedule material deliveries to be just-in-time for large multi-release jobs
   
   When it comes to large jobs, schedule the right-sized deliveries from your vendors. If you have blanket orders from customers whereby you ship a fixed quantity of parts on a recurring basis (ie. 100 parts shipped per month for 12 months straight), set up the same schedule with your vendors.  Most are happy to take a larger order from you, and ship and invoice just for smaller batches as they are delivered.
   
5. Determine which jobs actually make you money
   
   Have a method to determine job costing and profitability. Knowing which jobs make you money and which jobs don’t can be a huge factor in understanding where to focus your efforts. Accurately tracking labor and out-of-pocket costs is essential to knowing which jobs might be slowly bleeding cash from your business. It’s up to you to know which jobs do this and take action to remedy 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.