Pricing Machined Parts?

Background
We are a manufacturer and seller of products that typically use an assortment of electronics and about 60 unique aluminum machined parts (90 total). Most are plates under 12" x 12" x 3/8" and most are machined rather than turned. Finish is black anodize.

I recently requested quotes for a representative cross-section of our parts from a web-based enterprise and was a bit surprised at the very low prices quoted from various companies. Most of the quotes were from companies in China and a few were from US companies that were 3 to 6 times the average from China. One US quote was comparable to the China average.

Our Made in the USA products are installed in 17 countries and we purchase only American made parts unless there is simply no viable American supplier. (USN 1959-1968) For machined parts I am willing to pay a premium for US made parts, but 3 to 6 times will make us unable to compete.

Question
My questions for this community are:

1.Why such a large disparity in pricing across the US? Why can one shop offer prices comparable to China while others quote 6 times higher?

2. Is the wide variation in prices based on tooling cost versus labor hours in the US? That is, does a shop with less computer/numerical controlled tooling cause their labor costs to overwhelm their quote, or vice versa?

I welcome enlightenment.

First and foremost, were you including shipping on these orders from china, also what i have found alot of times is the chinese will under quote and supply crappy quality, then come back and raise prices on you if you want something better. alot depends on revolving work load and how many setups are required. if this is a one time order then your prices will definitely be higher than if its a production order. also are you willing to give a blanket PO to the company doing the work for you here? also most likely chinese companies will expect payment up front before they ship, and will you really want to send it back to them if you need changes made? also material prices in that part of the world are not necessarily competitive with what you get here, along with grade and type of material is not necessarily the same even though its chemically compliant.

also us prices are affected by location, i bet if you quoted those in michigan you would be close to chinese prices right now. no gauruntee that the same company could do the work again later as they may not be around. also cost for anodizing and other machining process are affected by osha, minimum wage, etc.

we just took over manufacturing for a company that was having parts made in india, the material quality here is top notch compared to what they were getting there. even though our labor rates were higher and raised the prices somewhat, it really showed in the final product as there were less overall defects, parts fit together better, and the overall fit and finish was better. so that ultimately translated into more sales.

Tritek,

Why do prices vary so much from place to place? Hourly rates for most shops dont change that much across the country. Ill bet most people are in the $60-$80 hr range for a small shop. What is different is how each individual quotes a job, everyone is different and there is no one set formula for what works. You may get someone who is new to the process and get a cheap quote, you may get someone who doesnt have the time to quote or do all the work you want and has to farm some parts out and then you will get a higher quote. In addition to that as these companies dont know you then they will add a percentage extra to the quote to cover unknown costs.

If you really want true representative quotes then you have to take the time to get to know your shops. Yes that is hard but if you come to my shop and give me enough time to look over your parts and ask questions you will get a much better rate than if you ask me for a general quote.

What I tell the engineers I work with is the quote is the beginning of the process not the end. Let me quote you my best "guess" and if I am in the ball park work with me and together we can find ways to eliminate those roadblocks that cause some of the parts I make to cost more than others. I specialize in prototypes and parts that other shops dont want to do. Trust me there are ways to get the price lower and both of us still be happy.

Without seeing your parts it is difficult to see how many steps are involved or what type of tolerances you have but keep it in mind that all these things effect the quote. If we can discuss the parts in detail you may find that there are ways to reduce the price and still get you what you need. So much depends on good communication.

You wont get that in China, dont be afraid to visit your local shops and make good connections. You might just be surprised how reasonably priced things can get.

Charles

Thanks for the information Charles. We have used a few different shops over the past 15 years to source $20K to $50K per year in machined parts. I much prefer long term partnerships with U.S. suppliers and have some we have used since our beginning. However, I have found two reasons to search for new machined parts suppliers; first-we get bumped for larger orders, and second-prices rise over time well beyond what one would expect for material and labor cost increases. One machine shop quoter actually told me that they raise their prices until the customer complains and then they know they are at the best price-point. I will not source from anyone who shares that view. We would never price our products that way, hence my search for understanding of the variables.

Yea, I think raising the price to the point of your customer complaining and looking elsewhere is a little out of line. If its a repeat job, we quote to keep it. This means being competitive yet being able to turn a small profit margin.... the profit margin may be small but we went to make it again and again and again. Not just once.

Like what was said above, building a relationship with a good shop is your best bet.

During this year we have had multiple *big* jobs return to us from China. (Big to us is 10K+ a year). These are priced very competitively. The customer had china quote them... came back about 30% lower overall between casting and machining. The prototypes and first batch of parts were pristine. I was actually a little depressed when I saw them...seeing the quality and price of the piece made me wonder "now what the hell are we going to do". Then they raised the price 10%. Then quality went down the tubes very quickly.

Now the customer is quite content with my parts. Find a shop, work with them... i'd avoid the shop that keep raising the price till you cry "uncle".

Good luck! Keep it here if you can!

You could also see a price variation due to whether the vendor's equipment is the best suited to your job. Some could be making just 2 operations out of one of your parts while the other is taking 4. Some low over head shops (no machine payments) have dropped hourly rates in this economy. The guy who was even with China in the USA, I am sure made a mistake.

Yes, this Internet was supposed to cure all our ills and instead sometimes it seems to only add to the problem. Instead of dealing with a few local shops you have the whole country to search through. Dont give up, I am sure you will be able to find a shop or perhaps a couple of different shops that will be able to meet your needs.

Just dont take the guy in the US who was so cheap too seriously. If he was that far off then he probably didnt understand what was involved in your parts an likely wouldnt be able to complete the order anyway.

I know everyone wants that magic one stop shop to do all the parts but you might get better pricing if you break the order up into different pieces. That way you can send the parts to the shop that has the best capability to do those parts. You may find that this allows you to get better pricing as each shop will price to their own strengths.

Charles

Weirdly, I have had an assortment of people who make their living importing things from asia, tell me that in order to get good quality, they had to have their own people on the ground in asia essentially 360 days a year.

(One person told me this almost out of the blue on an airplane... I'm always amazed at what people will tell me on airplanes.)

This is related to what others have talked about - if you have your people there assuring you are getting what you need, you can probably get what you need. But is your volume high enough to justify that?

Also, without seeing your parts, one has no idea if they are being speced "the hard way" or "the easy way" - as in should they be made on CNC mill or on CNC punch press???

Pricing Model?

Do I understand this correctly, a machine shop will price the machining of a part for the expected (or actual) number of hours required times their basic rate, that includes direct costs (like labor) and overhead costs (like tooling & utilities).

So a shop with a more experienced person may do the part in half the time of a less experienced person? And a shop with a CNC may do the part in half the time as a shop with manual controls, but on a more costly tool?

Are these the major variables that drive the 3 to 6X cost variation from shop to shop that I am getting?

There is no algorithm with size, features, material, and number of setups as variables to estimate prices across geographical areas?

The reason I'm asking is for basic understanding. We build a wide variety of new products and I typically estimate the cost of the machined parts we will need for a new model based on the costs we have paid for similar parts. I've had a bit of "sticker shock" from time to time that was not expected when I went to other shops in the US. I've had parts quoted by China shops but am strongly motivated to stay in the US.

Rex

Some shops have a complex algorith they try and quote with and hope it hits on target. other shops try and guess at it and hope they get it right, then there are shops in the middle that will get a quote for material, possibly run it through a cam program with a basic setup, figure total number of hours, multiply that by the shop rate and then figure a fudge factor, based on the amount of previous work, how busy they are currently, how much of a pain the part may be to machine or fab or whatever.

alot of times it also helps to have some idea what you want to pay for the part. if you come at a shop with an expected price point alot of times it will tell them that your serious or it will tell them that there is no way they will waste their time quoting your part. again without seeing what you have its hard to know if your even trying to get a quote from a company that should be quoting your work. alot of times if you have a price point and some one looks at your print and goes no way, but heres how we can do it for that price, you at least will start a dialogue as opposed to getting sticker shock. there maybe things you can adjust on your print to make it easier to machine.

I think you have to assume that all shops have qualified people to make your parts. that may not be true but probably isn't what is driving the 3x-6x cost difference your seeing. some shops will make your work 100% perfect to nominal tolerances on every part and they will charge a premium for this. also they are probably ISO certified and may have multiple layers of inspections for your parts to go through before they are deemed worthy. these types of companies will charge a basic flat rate per hour and will not decrease because they are providing top notch service. at this point you either want them to do your parts or you don't. there are companies that are leveraged heavily with monthly payments and they need cash, these guys will adjust their price to keep machines rolling because they need the incoming cash. they may or may not be there a few months from now. then there are those in the middle with paid for machines, a basic overhead structure and they will most likely have decreased their hourly rate somewhat to keep business rolling in but are not desperate to do any and all work. these will probably be somewhere in the middle price range and will want to do your work.

another variable comes in with how familiar a shop is with the type of work your brining in. if they know they can make money on it, are already tooled up for it, and can tack on your material order with a few other they will most likely be the cheapest, but not always.

i really think that tolerancing is the key to getting what you want. if your print shows +/- .01 inches for every dimension anyone with a cnc should be able to knock it out with a blind fold on. if your tolerances are .00001 in some areas or every dimension is done this way, then you'll probably get the don't bother me price thats really high.

so no there is no set number per operation, per number of tools, per number of employees, per geographic region.

1.Why such a large disparity in pricing across the US? Why can one shop offer prices comparable to China while others quote 6 times higher?

2. Is the wide variation in prices based on tooling cost versus labor hours in the US? That is, does a shop with less computer/numerical controlled tooling cause their labor costs to overwhelm their quote, or vice versa?

Answer-
Time is money. If it takes a place 10min to make your part because they have high end machinery vs another place at 30min becase he has old machinery what place can do the part cheaper? The faster place would probably have a higher shop rate, but take less time. Even at 2x higher shop rate he is still cheaper than the slower guy.
Example
fast guy - 10min per part 1000 parts x shop rate of 120/hr = 120,000
slow guy - 30min per part 1000 parts x shop rate of 60/hr = 180,000

There is always someone in between and on each extreme end. The guy with a paid for cnc in his home garage will probably beat the guy with a full blown shop and emploees.

China doesnt have emploee benifits, osha, enviormentalists, nor do they care about quality or preserving life on the planet. Your quality will turn to crap as your profits rise then your sales will turn to crap as well as customer service requirements and then you will see your profits go to nothing.

Dont even get started on making delivery dates.
A part that cost more, is good quality and delivered on time actually costs LESS in the long run. This goes with all suppliers in your chain..

Seekins said:

Answer-
Time is money. If it takes a place 10min to make your part because they have high end machinery vs another place at 30min becase he has old machinery what place can do the part cheaper? The faster place would probably have a higher shop rate, but take less time. Even at 2x higher shop rate he is still cheaper than the slower guy.
Example
fast guy - 10min per part 1000 parts x shop rate of 120/hr = 120,000
slow guy - 30min per part 1000 parts x shop rate of 60/hr = 180,000

There is always someone in between and on each extreme end. The guy with a paid for cnc in his home garage will probably beat the guy with a full blown shop and emploees.

China doesnt have emploee benifits, osha, enviormentalists, nor do they care about quality or preserving life on the planet. Your quality will turn to crap as your profits rise then your sales will turn to crap as well as customer service requirements and then you will see your profits go to nothing.

Dont even get started on making delivery dates.
A part that cost more, is good quality and delivered on time actually costs LESS in the long run. This goes with all suppliers in your chain..

Click to expand...

What makes you think this is a valid comparison???

fast guy - 10min per part 1000 parts x shop rate of 120/hr = 120,000
slow guy - 30min per part 1000 parts x shop rate of 60/hr = 180,000

Click to expand...

The more I look at this the more it's all hosed up...
30 min / part x 1000 parts is 500 hours and at 60/hr thats $30,000

cancel the rest of my reply....

Never really hurts to pick up the phone, or go in person, find a shop that has a quality of work you can be happy with, and that is also easy to deal with(some places are impossible to deal with as you've learned), and then work with them. I sometimes have customer who do that,generally smaller businesses, larger ones don't do it nearly often enough.

I've often tried to reduce the costs of parts for my customers over time, while ideally not really losing on my end. Parts that were $300each are down to $180 and so on, and I know quite well most other shops would quote over $500 for the same thing, or no quote. But I still make shop rate, so I don't care that much. I kinda came to the realization that my customers need to compete too, and that its in my interest to hopefully help them stay in business. But it seems pretty common practice in this market for everyone to try to milk the last penny out of anything and everything.

Sometimes if you have a good product, the best route is to manufacturer it yourself. It is a bit, or a lot, of investment, but machines are yours and makes your company even more valuable.

I think it does pay to shop around. I found the same range of price disparity in a custom product I buy occasionally from a US supplier. And the low bidder comes through consistently with a very good product. So I have to conclude that ingenuity in manufacturing must have a lot to do with the price point, it is not just a matter of "we're Americans, so we have to charge a lot because we have a lot of overhead".

I think that the smart way to shop is to get a quote on small lots first, and maybe farm it out to several different companies. Evaluate the quality of what comes back. From the most favourable, contact them and ask how the job went and if they are interested in doing larger quantities and if they could beat their own price, etc. That might involve further negotiations on the design of the parts themselves.

Something i run into at times, that was mentioned in an earlier post at some level. People not "In the business" of cnc might now know whats "easy" to machine, or a "Pita" to machine(Sometimes people have this idea that you just "Tell" the machine to make "This", and it just does).
As said, sometimes a small change can make a big difference in price, and sometimes it's not something THAT critical to the overall finished product. I've had a couple parts that i could offer up a couple small changes that eliminated a fixture or another clamping position. Drastically changing the price.
As mentioned, i think communication is critical to make both parties involved happy with the final outcome.

And some of us will also give a bit of a better deal and/or faster service to those who like to pay COD or within a few days or having the parts and not 45-120days later.

Just going to come out and say it. The vendor that is raising his prices, are you paying on time? Loosing invoices? Calling on Monday asking for Friday delivery after someone approves, then calling thursday night with approval?

Also the variation in part prices, are all shops quoting the same tolerance level? Just because it says it on the prints doesnt mean they are going to deliver. The chinese are notorious for this as well as subing material at random.

You get what you pay for...then pay for what you get

As others have stated, there are multiple variables involved including the biggest one, we are human and not perfect.

No two folks will quote the same job with the thinking, so the first thing you will need to locate is a shop with quality people, all of the people you need to interact with must be top notch, know what they are doing and be able to work well with you, this means being able to communicate the project, feedback the problems with the concept and be able to develop the final plan to create the part.

Next develop the team concept with this shop, if they believe they are your single source and you make it clear that as long as the team concept is used and the cost, quality and other things are constant they will stay your provider.

From this they need to have the ability to provide the quality needed (higher quality = higher production cost) for any given part.

Once all of this is determined there could be a reasonable expectation that the cost of producing any given part is clearly understood by both parties to avoid said sticker shock.

The final result may be what seems like a higher cost, but when you factor in the bonus of a shop that will work with you in creating the design you gain from their experience and you may create a part that has a better design that could be cheaper to create due to the improved design, this results in a cheaper per part cost while increasing the quality and cycle time of your product.

Hate to say - but I am only taking the time to read your posts and not all the replys.

TriTek Corp said:

Background
We are a manufacturer and seller of products that typically use an assortment of electronics and about 60 unique aluminum machined parts (90 total). Most are plates under 12" x 12" x 3/8" and most are machined rather than turned. Finish is black anodize.

I recently requested quotes for a representative cross-section of our parts from a web-based enterprise and was a bit surprised at the very low prices quoted from various companies. Most of the quotes were from companies in China and a few were from US companies that were 3 to 6 times the average from China. One US quote was comparable to the China average.

Our Made in the USA products are installed in 17 countries and we purchase only American made parts unless there is simply no viable American supplier. (USN 1959-1968) For machined parts I am willing to pay a premium for US made parts, but 3 to 6 times will make us unable to compete.

Question
My questions for this community are:

1.Why such a large disparity in pricing across the US? Why can one shop offer prices comparable to China while others quote 6 times higher?

2. Is the wide variation in prices based on tooling cost versus labor hours in the US? That is, does a shop with less computer/numerical controlled tooling cause their labor costs to overwhelm their quote, or vice versa?

I welcome enlightenment.

Click to expand...

When you "online Quote" on MFG (we all know who they are) you get all types of replys. I dinked with that site for a while - and I only ever bothered quoting items that were in my niche'. I believe that I was usually half of "average". But I seldom ever saw any work. ...but that's another story.

The deal is that while I would only bother taking the time to quote items that I was most efficient at - there were numorous jokers out there quoting EVERYTHING! Stuff that they obviously had no idea about, or the means to produce efficiently. When a person is continuously twice the average - it would seem to be a good indicator to not bother quoting that type of stuff. But I am sure that there is and will always be many out there at all times that have to figger that lesson out for themselves.
(slow study?)

Those are your way too bloody high quotes.


On the other hand - those stateside that were inline directly with China - likely either have no clue - or forgot something. (like the cost of the material? OOPS! ) When forty-leven folks are quoting the same thing - there will always be someone that misses something and quotes way too low. The trouble is that since due to shear numbers - there will ALWAYS be at least one (and likely more) that will fill that slot on every RFQ posed - they are the ones that get the jobs usually. I know that the only job(s) that I got there was where I thought that a very fine lines print had one tight bearing hole - actually had 3 and a sister part had 4 - yep - I got that job.... But I made good parts and shipped on time.


Just b/c someone has a low price doesn't mean that they missed something tho - if the number of quoting parties is low. It could simply be that they excell in exactly what it is that you are looking for. Same can be said for the higher bidders. It may not be their niche', but yes - they can make your parts.

The key is to find that shop that is very efficient in running similar work. How to weed through all of us - I have no clue.

One machine shop quoter actually told me that they raise their prices until the customer complains and then they know they are at the best price-point. I will not source from anyone who shares that view.

Click to expand...

I know of this same mentality. I know a shop that had a big customer want to unload all of a certain type work onto them. They were quoting and getting most everything from them right out of the gate. Big Customer fealt that this shop should be able to handle their products - or at least be able to source outside help to meet demand - so that they could essentially offload this burdon.

However (and they even told me so) they kept upping the rate on the quotes to see when they quit getting some. Talk about a gift horse!

Had this been a situation where they were "just another suplier" - then I could see this working. But with the deal (so I was told) that they were essentially in process of _ Big Company quickly quit running work there and shopped elsewhere. Now they doo still doo some work for Big Company, but NOTHING to the scale of what it was right out of the gate.

Not saying that an increase isn't expected at some scale, but the way that some handle this leaves something to be desired.


Just today I heard some talk locally about the hot term "re-shoring". It sounds like one of our past customers may be looking at this with some seriousness. But I am taking that with at least one grain of salt. But time will tell.... But I will say that the shops that ARE still open will be flooded with work soon enough - if not already. So much of the competition has folded, as well as the ones that are left have down-sized, and as things pick back up - and with any amount of "re-shoring" that may actually happen - it will be a manufacturers market. For a while at least...


-----------------------------


Good luck sorting the wheat from the chaff.
Ox

Actually we consistently pay Net-30, rarely ask for an expedited build, and often receive the parts significantly later than quoted. However, about 10% of our first-time drawings invoke a phone call for a missing dimension on a drawing.

I much prefer partners to vendor/customer relationships but it is very rare indeed to find a shop that operates that way. I am amused now when shops who bumped us for bigger customers call me asking for another opportunity. "Stiff me once, your mistake, stiff me twice my mistake". :-)

Thanks to all who offered advice.

Rex