The How-To’s of Quoting

THE INDUSTRY CLICHE is that the company that forgets the most items in quoting wins the job, but loses its shirt. In the adversarial bid process, you live and die by an agreed-upon number, and the customer isn’t motivated to help you make money on the deal.

“Half the time you lose because the process proves unexpectedly complicated, but doubling the anticipated price or making the mold on a cost-plus-basis won’t fly with the customer,” says Gordon Baker, mechanical engineering manager at Flexcim Services Inc. in Edmonton.

Performance determines price

Baker has developed complex spreadsheets to estimate likely maximum and minimum costs. He then sets and quotes a target mold cost in between. The customer agrees to pay the average of actual cost and targeted cost. If the finished mold comes in below target cost, Flexcim gets a bonus and the customer doesn’t pay full price. If average cost exceeds targeted cost, Flexcim gets half the hourly rate during the over-run. “The onus is on both parties to work together to finish the job as efficiently as possible and get it right the first time,” Baker says.

Baker’s benchmark

Ill-defined projects that run too long are hard on cash flow.

Baker recently modified his “targeting system,” incorporating a monthly “progress payment” during the over-run in addition to the down payment and normal monthly progress payments.

Chris Singleton, director of sales and marketing at Alliance Technologies Corp., Kitchener, Ont., says a quote for injection molding should include:

Production rate: estimate cycle time by considering wall thickness, weight, resin type and history of previous similar production.

Molding labor: divide hourly machine rate by production rate.

Resin: Calculate the weight of the part and multiply it by the resin cost/kg.

Secondary operations: multiply number of units per hour by hourly rate.

Profit margin (10-15 per cent minimum): Some companies have a separate margin; others bury it in machine rate.

You will be certain to get the order but lose money if you omit the following, say Baker and Singleton:

Sprue and runners: include their weight in the part weight unless you have a legitimate use for the regrind.

Purchasing: add 10 to 15 per cent to the raw resin price to cover other overhead costs. Convince resin suppliers to include freight costs to your plant; they cut better deals.

Rejects: divide total number of parts produced by number of parts passing inspection. Multiply final price by this ratio to compensate, “because there are few perfect shots,” says Baker.

Set-up: your machine still costs the hourly rate during mold set-up and set-down. Amortize lost revenue into final part cost or show separately.

Sample: waiting time approval of first-off parts is lost productivity. Producing too many off-spec parts while waiting also costs. Include proving time in target price.

Parts warehousing: floor space and interest charges incurred “because you did that long run and stored the parts for all those little just-in-time deliveries.”

Interest charges: include them if you must wait 90 to 120 days for payment.

Contingency: add this charge (from zero to 20 per cent) to the first-time quote to “appease nagging, negative hunches,” Baker advises.

Neither gamble nor gouge

If you have to quote a price that’s good for a year, secure a commitment from your resin supplier to hold price. Baker suggests reviewing cycle time, shot weight, material cost, and reject rate of the previous production run before accepting a new order, or passing on any pricing drops.

“Focus on developing productive, beneficial relationships instead of fixating on the lowest price to get clients in the door,” Singleton summarizes. CPL

Jocelyn Chu is a freelance writer-editor-illustrator and website consultant who shuttles between Fernie, BC and Toronto. Her E-mail is Jocelyn.chu@cancom.net