Quoting High Volume Work

Hello everyone, for those of you that run larger shops with several machines, when you are quoting high volume work is your hourly rate based on the number of spindles running, or is it per operator.

Example:
Your hourly rate is $100/hr and you have a job with roughly 500 hours of spindle on time, but an operator can run 2 machines (loading unloading parts in the vise) so the actual time the job is being ran is 250 hours. Would you charge for 250 hours at $100/hr? Or 500 hours at $100/hr? Or some other combination?

I would appreciate any insight some of you owners could give me.

Divide setup time and tooling across the run quantity and add it to the cycle time to produce one part. Spindle time and handling. For example:
500 parts
2 hour setup
2 min. Cycle time 1st op
30 sec. to load in machine for 2nd op
3 min. Cycle time 2nd op

Billable time = (2hr.)+(500x2/60)+(500x.5/60)+(500x3/60)

Part cost = (Billable time x 100)/500

About $9.17/part

And add in material and tooling

You should know what your cost per minute is.

labor + bennies
Floor Space Costs per sq ft (overhead)
Utilities
Equipment replacement costs
Tooling cost
Coolant cost
Fixturing cost
Development cost (if req'd)
Programming cost
set-up cost
quality cost
post-machining costs:
- deburring
- tumbling
- heat treatment
- outside surface treatment
SG&A

If you understand your costs, then quoting is fairly straightforward. Folks say "hey I know how much I spend"...... yea, but they don't know or understand what their costs are. Understanding where the costs actually are can assist you when you quote a job like this because you can more easily see where costs are reduced by say loading up 2 machines for the job. Labor is a big savings on this job, but there are also savings in inspection labor, possible savings in deburr time, etc. Understanding these things will let you be more competitive quoting jobs.

If you are running a large quantity of parts I would add cost of a fixture and tooling cost if applied. Some places may ask for a quote on 10,000 widgets to get the cost down and then when you give them a cost only order 100 parts. Are you designing the parts or is the customer providing you prints and models to program on. I would add engineering costs also.

LibertyPrecision said:

Hello everyone, for those of you that run larger shops with several machines, when you are quoting high volume work is your hourly rate based on the number of spindles running, or is it per operator.

Example:
Your hourly rate is $100/hr and you have a job with roughly 500 hours of spindle on time, but an operator can run 2 machines (loading unloading parts in the vise) so the actual time the job is being ran is 250 hours. Would you charge for 250 hours at $100/hr? Or 500 hours at $100/hr? Or some other combination?

I would appreciate any insight some of you owners could give me.

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Having an operator run multiple machines is to your benefit, not your customers.

Larry Dickman said:

Having an operator run multiple machines is to your benefit, not your customers.

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Unless your competitor is also running two machines, and bids less due to the efficiencies lowering his costs. Then running two machines is to the benefit of your customer, and your competitor.

Larry Dickman said:

Having an operator run multiple machines is to your benefit, not your customers.

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Absolutely ,otherwise we could end up running parts for free, that can't be right.

Lets pretend the operator was running 2 different jobs, which in my experience is even more likely. Who gets the price break?

My "feel" is that there is no right solution as such.

As the provider You probably want to keep the extra margin, and then when things happen You also want to fix stuff for free so the customer is happy - even when it is not your fault.

Almost all customers like and accept that - ime.
Telling this honestly to the customer requesting lower prices has been a good tactic for me for decades.

But details matter and making 100M iphone widgets or 2M auto widgets vs 20.000 widgets is not at all the same.
All sorts of solutions exist in each market.
E.
Many buyers of 100 widgets wanting pricing for 20.000, can be enticed to paying a 5000$ NRE or setup fee to get pricing for 20.000 units right off the start.

gustafson said:

Lets pretend the operator was running 2 different jobs, which in my experience is even more likely. Who gets the price break?

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If the operator is taking care of 2 machines then you are paying for 2 machine's worth of coolant, electrical/air, spares, tooling, etc.. You can split the operator's time if you want, but obviously your $20/hour guy is not the long pole for your $100/hour shop rate.

Regards.

Mike

Finegrain said:

If the operator is taking care of 2 machines then you are paying for 2 machine's worth of coolant, electrical/air, spares, tooling, etc.. You can split the operator's time if you want, but obviously your $20/hour guy is not the long pole for your $100/hour shop rate.

Regards.

Mike

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Payroll is usually one of the top expenses in business.

If the two machines were new 100k machines, it would be about equivalent to lease payments

My point being it is not the customers savings to take

As others have said, I would also definitely go by machine-hours. For a long running job of guaranteed work though, you might consider reducing your shop rate.

gustafson said:

Lets pretend the operator was running 2 different jobs, which in my experience is even more likely. Who gets the price break?

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I would think that running the same part on two machines would still be the same cost, It may cost $100 to use machine A and B but running them back to back would still be the same amount of hours quoted if you only use 1 machine.

LibertyPrecision said:

Example:
Your hourly rate is $100/hr and you have a job with roughly 500 hours of spindle on time, but an operator can run 2 machines (loading unloading parts in the vise) so the actual time the job is being ran is 250 hours. Would you charge for 250 hours at $100/hr? Or 500 hours at $100/hr? Or some other combination?

Click to expand...

If you have 50 machines in your shop, all 50 running this part, are you going to charge the customer only 10 hours (per machine) x $100/hr rate?

Run it on two machines you probably need to double the setup and tooling costs. It'll take more programming too unless the machines are identical.

There are three valuable reasons to make these kinds of adjustments on cost for a quote:

1. To know the cost of pricing things low in order to enter a new market or get a new relationship with a customer
2. Measure the actual performance against it to either improve future costing calculations or to hold operators accountable
3. To come up with a price.

Like Larry Dickman pointed out, running multiple machines, how many operators are on it, how your shop is laid out, all of those concerns are to your benefit, not your customers. A big cultural change we push for is to price based on market value since it helps the entire market out, and your own margins too. You can figure out market pricing over time by looking at win/loss by industry, customer, part type, material, etc.

*The true cost is primarily valuable for pricing-based marketing OR for shop production accountability.

The direct answer to your question is to say: charge whatever you can get.

Further, as Adamm pointed out, it matters what your competition is pricing. If you have to price the lowest cost you possibly can to get the job, your competitor is likely doing something different than you and able to make more money sustainably, or has capacity not fulfilled by other high margin work. If you’re not in the same situation, you’ll either have to figure out how to run that job better over time, and assume that you will, or it would be equally prudent to not bid that job.

An even more specific answer would need answers to questions that other people in this thread are also getting at:

Does your labor rate factor in indirect time? At $100/hour we can assume some indirect and overhead items are also factored into here, benefits, weighted deprectiation, maintenence, etc.

If not, factor those in first.

How much setup time is there? What’s the frequency that you’ll do jobs like this? How high volume? What % of your shop’s capacity does this take up? Are you able to charge for any tooling that you need?

The worst mistake someone can do is low ball a high volume job because you will be made miserable for a long time while you run it and don't have capacity for other work that comes in and can make good money.

I have a pretty large shop and we do some volume parts that are dirt cheap but it takes 1 guy 60 minutes worth of labor a day to supply the machine with 24 hour of material and it just runs by itself with no worries other than check the coolant before you go home. The only reason we do them at all is because the customer pays upfront for the parts currently in process.

Larry Dickman said:

Having an operator run multiple machines is to your benefit, not your customers.

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Or - it could be to the neighbors benefit from you over charging?

I would look at more along the lines of 500 @ $75.



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Think Snow Eh!
Ox

hanermo said:

My "feel" is that there is no right solution as such.

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That's my feeling too. You give an offer for a specific quantity (to spec and delivery time) and that allows you a decent profit. How many machines and operators you use is irrelevant to the customer.

Quoting jobs always proves a popular and divisive discussion. Some like to base their rate on just a few major items that absorb all the cost, others like to have every item itemized and counted for. Wages make up a portion of your overall costs so no you cant just half the hours or the rate because one guy is running both machines.

Lets say you have one guy capable of running 10 machines, do you now only charge for 50hrs run time?

What if it takes 4 guys to run your two machines. Will you win the quote charging for 1000hrs?