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

Profit margins in the CNC machining job shop business are notoriously slim.  If you’re quoting your work with a 20% profit margin, everything has to go perfectly in order to make that much profit.  If anything goes wrong during the process of quoting or making those parts, you can easily eat away that profit, or even lose money on a job.  It happens all the time in shops across the industry. I know it happened in my own shop many many times!  It’s a hard reality to deal with, and just one unprofitable job can wipe out the profit of many good jobs.  As such, it’s wise to do whatever we can to improve the percentage of jobs that are profitable, and keep them as close to, or higher than the estimated profit margin.  Checklists are an excellent way to improve the percentage of profitable jobs in your CNC machine shop.

Checklists can be incredibly effective ways to very quickly ensure that your process is being followed, and that things that might slip through the cracks and cost you a lot of money don’t happen.  It’s likely that a checklist for virtually every step of the process is worth having, but I’ll just highlight 5 checklists that I would recommend you put in place. 

  1. Estimating/Quote checklist - This is the very first place that big mistakes can happen, that can result in lost profit.  If you forget to check the price of a volatile material, or miss the fact that a custom ground cutter is needed, or you need to buy a special thread gage, all these things will result in you missing an expensive detail and underbidding the job - virtually guaranteeing that you’ll make less profit than you estimated.  So a simple checklist is highly recommended.  To develop one, review your last 10 most unprofitable jobs to help you determine what should be on the list to ensure you eliminate those mistakes in the future.
  2. New order checklist - When you receive an order, this is the next place to put in a checklist to ensure nothing gets missed. Ensure the price and lead time is what was quoted, that you have all the correct revision drawings and models, that the mil spec for the materials are correct (and you don’t accidentally buy the wrong material), that you have enough lead time to complete the job without incurring expediting fees that weren’t quoted. There are many gotchas that can easily be eliminated by the simple use of a checklist. And those gotchas can be catastrophic when it comes to profitability, so this is a very important list to make!
  3. Programming checklist - CNC programming is a very complicated process. There are a thousand details to keep track of, and possible things to get wrong. So a checklist can easily help improve your chances of success. From the obvious things like ensuring you have the correct model, to making sure that the tools you’re programming are in-stock or on order, to reviewing your drill/tap depths, to gouge checking, and ensuring your tool extensions are correct and won’t cause crashes. By working from a simple checklist (which takes just seconds to complete), you’ll dramatically reduce the occurrence of errors or omissions which will help boost profitability on all your jobs.
  4. Setup Checklist - When you’re about to set up your CNC machine, there are a lot of things that are needed to make sure that process goes smoothly. Missing just one detail can cause a setup to easily go sideways and take hours longer than was estimated, increasing the risk of losing money on the job. Items that should be on that list would include ensuring your tool extensions are all correct (and you have all the tools in the first place!), you have all the inspection equipment you need, your work instructions are current and complete, you have the right G-Code file, and all your work holding is ready to go.  If you are missing any of those items, the setup will take you longer than it should, which not only is a hit to profitability, but will make your schedule slide, further risking the profitability of your other jobs which may need to be expedited to stay on-time!
  5. Job completion checklist - When the parts are made, and shipped off to the client, next comes one of the most important checklists of all.  This one is a final review to ensure that any mistakes or losses that were incurred during the job, can be identified and mitigated in the future.  This step is one of the most important in any job shop environment. The Pareto principle states that roughly 80% of consequences come from 20% of causes.  Applied to job shops, 80% of your losses are coming from 20% of your jobs.  By using a checklist you can dramatically reduce the chances that you’ll keep taking jobs that are unprofitable, or under-performing compared to your targets. Whether the solution is to increase your price, improve the process or fire your customer, after going through a job review checklist, the solution should be clear and you can take action to avoid the issue in the future.

I hope this selection of checklists resonates with you, and helps you decide to take action by making checklists a part of the documented process in your shop. A good checklist can make it very easy to eliminate common mistakes and help standardize your processes to optimize for profitability.  You might even think of other checklists that you can implement to improve the robustness of every part of your business!

How can ProShop help?
ProShop has many types of checklists built into it’s workflow.  These checklists can be used to eliminate mistakes in the process.  Starting at the beginning, our Process Development feature is a checklist/action list that can be used during estimating to identify things that need to be reviewed and/or solved and are not missed when the job is won. Once you’ve won the job, our  built-in contract review checklist can ensure you don’t overlook important details, along with providing a complete audit-trail of who confirmed or checked off each section (this is important for ISO 9001 or AS9100 compliance).  Next our Pre-Processing checklist system will cover the checklist needs for planning, procurement, quality plan creation, programming, and job prep/setup. (Insider Tip - the checklist is automatically configured based on the type of job you’re running - so it can be more thorough on a new rev or part vs. a repeat order you’ve done before. So you only need to check the relevant points based on those different types of jobs!)  If all these built-in checklists sound intriguing to you, please click here to book a discovery call to see if your company would be a good fit for ProShop.  When clients of ours have really embraced our workflows and checklists, they often see efficiency and profitability increases of 20% or more! 

Written by: Paul Van Metre

Every shop I’ve talked with cares deeply about doing a great job for their clients. They try hard to keep track of all the important details of their jobs.  Due dates, materials, requirements, and a million other details all need to come together to deliver the right parts, within tolerance, with the right paperwork, on-time!  It’s a very hard juggling act and despite best efforts, sometimes things don’t come together right and mistakes happen. Maybe you realize you’re going to be late, maybe you scrapped some parts and need to deliver short, or maybe you misquoted a job and need to raise the price a lot next time (or this time). The fact is that even for the best companies out there, mistakes and $#!% happens from time to time!  When it does, you need to deliver bad news to your customer. The way you approach this task is really important and can make or break your relationship with that client.

When the uncomfortable work of delivering bad news to a client needs to happen, these are my top 5 tips for delivering that in the best way possible:

Do it NOW 

Bad news doesn’t get better with age. As soon as you realize a mistake was made, you need to gather the details and reach out to clients right away. The more lead time you can give them, the more time there is to come up with a recovery plan. If it’s a delivery that’s going to be late, or you made a mistake and need their feedback on a recovery, the more time you can give their clients to mitigate the issue, reschedule things or develop a backup plan, the better it is.  If you are nervous about admitting the mistake and put off making that call, it limits the options that your client will have when time gets more crunched at the last minute.

Take Responsibility

When the mistake is your own, it’s important to take responsibility. Apologize sincerely and own the mistake. Don’t half own it, or throw someone else under the bus. If it was your outside processor who racked the parts in the wrong hole despite your clear instructions, it’s still your responsibility.  The difference in the client’s perception between you fully owning the mistake and you only taking 70% responsibility is a night and day difference.

Be Honest

You might be inclined to tell a white lie about what actually happened, but resist that urge and be fully candid. The truth will likely come out in the long run, and it’s hard to remember exactly what you said and have everyone on your team on the same page. However, if the truth is shared, nobody needs to be debriefed on what to say.

Offer Options

After taking responsibility and being honest about the situation and where things are at, a recovery plan will be next on the agenda. Having already thought about and documented potential options that you can share will go a long way in conveying to your client that you’re taking the situation seriously. Having at least 2 options will show that you’re open to different ways to solve the problem.  You’ll never know what the customer will think. Maybe they can use a partial delivery until you get them the balance, or maybe they will offer a rework option that’ll still work for their application. Or maybe that higher price (because you underbid the job) is still very competitive and they’ll keep the work with you.

Follow Through

Once the plan is decided on and you’re going to execute it, make sure you do everything you can to deliver on the new promise. If you have to pay expedite fees, suck up and do that.  Make sure someone is giving extra attention to the job to make sure it all comes together.  Once you’ve delivered on the promise follow up to apologize again and make sure everything is okay on their end.  I’d suggest even sending a handwritten apology/thank you note for their patience and grace (even if they didn’t show much of it).  There is no downside to being extra contrite and lots of upside. The extra attention and care you showed the client will stand out and not go unnoticed. 

As stated above, sometimes bad things happen to good companies. It’s inevitable that you’ll make mistakes and the client will suffer for it. But how you handle the situation will make all the difference in their perception of your shop and whether they choose to do business with you in the future. I can recall mistakes that my shop made that could have been really bad, but we handled it with such an abundance of proactive communication and professionalism that it turned into a net positive for the relationship with the client. Those are the actions that will set your shop apart from the competition and allow you to keep growing and keeping those critical clients.

How Can ProShop Help?

ProShop is filled with features and thoughtful workflows developed over more than 20 years in our own shop and supporting hundreds of shops around the world that are expressly designed to help you reduce and hopefully eliminate mistakes from happening in the first place. From our Process Development feature which helps identify "gotchas" that’ll cause problems down the road if they aren’t addressed, to our ability to systematically identify individual part number based packaging, paperwork and quality requirements, which will ensure that the client requirements are always known and met. From closed-loop scheduling fed from actual shop progress, to help you ensure your jobs are delivered on time, to managing separate versions of the approved drawing which have specific markups for each outside process to ensure your partners get it right, the ProShop Digital Manufacturing Ecosystem is designed to help you execute every time with the minimum of effort, allowing you to perform at the highest level with the lowest possible cost.

As the holidays approach, and work begins to wind down, the excitement of time off to enjoy family and friends, share great meals and exchanging gifts begins to build. It’s a time to reflect on the year, love on others, and give thanks for the abundance of life. As I reflect on my nearly 25 years in the machining trade, I’m struck by how much our essential industry means to the modern world and Christmas, Hanukkah, and any modern holiday. Bear with me as I (geek out and) go deep into why I believe this so deeply.

As you browse through the aisles of any local toy store, or surf Amazon or your favorite online toy retailer, you may recognize that most modern toys are largely made of plastic. Every one of those toys and all their plastic parts were almost certainly made on injection molding machines. Those machines use complex molds to receive molten plastic and form them into the shapes the toy designers envisioned. Those molds are highly complex machined parts, usually machined from solid steel. The molding machines themselves are almost entirely made from machined and fabricated parts. If you can look at the underside, or inside of any plastic part, you’ll often notice circular patterns snaking around the surface - machining marks from the cutters which carved away the metal to produce the mold.

If you are going high-tech this Christmas and gifting the latest iPhone or Android model to a loved one, those phone cases and many internal parts are directly carved out of solid chunks of aluminum or stainless steel. Thousands of CNC machines work 24/7 in factories all over the world making precision machined parts that are accurate to tolerances many times smaller than a human hair to make any modern electronic device sold today.

If you buy something a bit more homemade, a wood craft or handmade jewelry from a local merchant, I can assure you that machining was essential for the creation of those goods as well.  The wooden crafts were made with tools, handheld, or machinery, which were built almost entirely of machined parts. The pliers used by the jewelry artist to lovingly bend wire into shape, were cast and finish-machined to make them work precisely. The wire itself was drawn on machines as well, made entirely of, you know what…machined parts.

If you are the type to give experiences rather than physical gifts, good for you! But the experiences your receiver will enjoy are nearly guaranteed to be impossible without machined parts. The hot-air balloon ride could never happen without the huge weaving looms that made the balloon fabric, the machines that wove the ropes which hold the basket, and of course the burner and fuel tank which lift you into the air. What do all these items have in common?  They all require machining in order to be made. 

For many, the season is celebrated by getting out of the house and enjoying a hike up a local mountain, or hitting the ski slopes. None of you would make it out the door without the benefit of machining. The rubber soles on your hiking boots were molded in a machined mold, and the leather processed on large machines. Same with your ski boots, the hiking or ski poles, and even your coat. None could be made without the benefit of equipment made up almost entirely of precision machined parts.

If gifts or experiences aren’t your style, and a thoughtfully written letter or card is your vehicle for expressing love, I’m excited to tell you it would be impossible without machining! The paper you chose is made on large paper rollers which are large machined cylinders. The pen you craft your loving note with couldn’t have been made without machining and the tiny precision parts needed to make your pen work so perfectly.

Any holiday meal you enjoy will be a marvel of the modern supply chain. Processing foods grown or raised on farms around the world. These farms run on machines, the food is transported on machines, processed on machines, packaged on machines and delivered to your local store and your home via machines. None of this modern equipment could be manufactured without machining. Just one more example of how the holidays would be impossible without the machining industry.

I could go on indefinitely, because every modern product in existence today starts with metal and machining in one way or another. Machining is absolutely a bedrock of our world economy. I encourage you to think about it for a few minutes. Most people don’t stop to think about how products are made these days. They just enjoy the benefits of highly engineered, expertly crafted, and remarkably inexpensive products, all made on incredibly complex machines which are marvels of modern engineering and precision manufacturing. These amazing products are designed by engineers, programmed by CNC programmers, machined by experienced machinists, inspected by skilled inspectors, and they’re all supported by an entire industry of professionals who love coming to work to turn raw materials into the precision products that are essential to our modern world. Most of these professionals work at small and medium sized manufacturing companies that are, more often than not, family run businesses. 

So I might make a bold suggestion. Google “CNC machine shops near me” and call up a local machine shop near you - there are nearly guaranteed to be many to choose from. Go visit them, bring your kids to share with them the wonders of modern manufacturing, and help them understand how critically important this industry is to modern life, and their lives. Thank the owners and everyone who works there - and maybe even bring a small gift as a token of gratitude for their efforts running one of the hardest businesses in the world… a gift which would be impossible without other shops just like theirs.

Merry Christmas!

Have you shelved physical inventory counting till year-end? Cycling through all that needs to be done? 

Are you racking your brain on how to get it completed? Well you can count on us for some helpful tips & tricks! 

Puns aside, I know many of you are facing year-end physical inventory counts in the coming weeks, and this is a great time to share some best practices. I’ve found pre-planning in three key areas can help make this process run smoothly and be a success for all involved!

Organizing Resources

Depending on the size of your inventory and the level of detail you need to capture in your counts, organizing resources in advance of a physical inventory count is key! Pre-planning on your part will not only make the count go smoothly, but also will make the process more efficient & enjoyable for those involved. 

Logistics of the Count

Thinking through the logistics involved in a physical inventory count ensures you have all the tools you need to the day of. Here’s a few areas to focus on as you prep: 

Make it fun! And say thank you

“Inventory counting is fun!”, said no one... EVER! BUT you can make the event more enjoyable for the team by considering the following:

Schedule A Demo
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