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Transition from low volume to production

Covenant MFG

Aluminum
Joined
May 26, 2021
Location
Greater Sacramento
Hey all,

So this is gonna sound vague but bear with me here. I've been in business about 2 years or so, decent 60% profit margin or so, solo shop with my wife helping, one VMC.
Anyway, like most guys I started off super low volume. Overnight turnaround stuff, 1-2 parts. Decent profit since I run without debt. As time has gone on my usual customers have consistently been sending bigger and bigger RFQ's, and we won a decent sized one with with about a thousand parts or so that came to a $28k PO. It was a blessing but meant I had to turn away other customers for a while. My usual transaction size is $2k-$5k.

I'm really not used to doing that volume but it looks like that's what we're shifting to. I can handle messing up quotes on small jobs since they're a few days of work usually with decent margin and I rarely take a loss, but I'm getting nervous about some of these big jobs where estimating down to the minute of run time is a huge deal. It's no longer "bah looks like an day and a half job, smack that quote and if they like it they like it".

So, any anecdotal guidance for general principles for these next steps? The profit is nicer, it's not feast or famine, but I'm nervous about tying me and the machine up for a month or more at a time and turning away other customers who I have good relationships with. I'm also not quite ready to expand or hire, I've got a few savings goals to hit before I feel comfortable doing that. I'm nervous too about subbing work, I've done that a lot and the losses from subs being late or delivering bad parts has been rough. Looking for general advice for anyone who's gone through this transition. Am I getting too skittish? Should I stay in low volume where I'm comfortable and know I can make a profit?
 
This is where the small guys get stuck transitioning to the big guys.

I have a good deal going with my building, and overhead, etc. If I were to expand the shop size, it would increase overhead way more than makes sense. It is nice being small, but I am here to make money and become big. Its a hard thing to plan for, but its also hard to say no to good paying work that is right in front of you.

Try to grow slow enough to where nothing is really a shock to you. Looks like you have so far, and are comfortable.

More $ and bigger jobs, is a good problem to have. Stay Debt Free!!! is my advice.

Good Luck.
 
I would say that you fetch another mill.
I would guess that the production parts don't take as much of your personal time, and more machine time, leaving you able to dink with onsey/twosey's between feeds.

I understand that you wouldn't be as efficient on the 1-2 job, but you have the other going as well, so ....


As for hitting the cycle times, I have better luck with that - than 1-2pc jobs.



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

Think Snow Eh!
Ox
 
Put in the extra hours 7 days in a week and improve some processes/tooling and work flow, when the ROI makes sense and there's $ buy more machines. I don't miss doing 1 of and prototype stuff, wasting hours trying to find tooling/etc and people always wanting it yesterday one bit.
There's also a big difference between production of 2 minute parts that need no attention and can be thrown in a bucket from across the shop and still be "good enough" and parts that take hours and need constant attention and perfection. One also pays better than the other usually...
 
Can these parts be ganged up in the machine(s)? Can a rotary tombstone either increase density and/or reduce part flips and handling?

I only vaguely remember your particular setup but, your problem will be the monkey tending the machine, not the machine itself. This is where / why I advocate for larger machines, with more parts on the table or tombstone. If the monkey only has to tend the machine twice an hour, even a slower cycle time is acceptable. The monkey is the biggest cost in your business. I hate to sound like a Jay Pierson fanboy but, part density, longer run time and faster change-out is your friend.
 
I'll tell you my experience and you try to give some advice at the end. This is not to be a brag but hopefully show you how quickly the work can come to you.

In 2015 the most sophisticated machine we had was a Trak DPM5. I had just finished college and was itching for a VMC so I didn't have to change all my tools by hand. We spent 72K on a TRAK LPM which was really big money for us at the time. By the end of that year I was convince a real VMC would take us to the next level. Our average PO size was probably $2000.

In 2016 we took delivery of our first Okuma M560. Within 6 weeks of having it on the shop floor I got an urgent request for some fairly complex parts, several hundred of each. I basically lived at the shop running the new machine for the next 8 or so weeks and cashed about 70K worth of work.

The following years looked like this.
2017- added 2nd Okuma M560
2018-Added 5th trunnion to M560
2019-Sold TRAK LPM and added Okuma MB4000 horizontal
2020-Added Okuma M560
2021-Added 6pallet pool to MB4000
2022-Hexagon CMM and 4th axis to M560
2023-4th Okuma M560
All Cash every time.

I am now owner and have the same number of employees. 3 Full time including me and 2 part time. Payroll has grown significantly. I have multiple open orders north of 200K with several more quoted. I have two likely projects in the 7 figure range per year.

Now the lesson.
Success is what happens when opportunity meets preparation. We continued to progress in equipment and capability to grow with our customers needs. We are now the shop they come to when they have challenging projects. I never planned on having so many machines with so much work going out. I showed my customers we could handle it and they never slowed down the flow.

I make my money in low-mid volume of complex parts. I still mostly quote on a pad with a pen and calculator.

Having so many spindles allows for redundancy and the ability to pivot to a different project in a different machine, should the need arise.

Once you have the capabilities you'll see how easy it is to load up multiple machines and get 15-18 hours of run time per day per machine.

4th axis with custom fixtures can give you big unattended time. Same with a tombstone.

I personally work 60+ hours every single week and am typically coming back to the shop for a few hours during weekend and evening to load parts and keep things going. It's rare for me to not be in the shop every 12 hours. You're time will eventually be multiplied. For instance, all of the last 2 weeks I was coming over at 10PM and changed parts in 3 machines that totaled 16.5 hours of unattended run time.

I wouldn't take on debt to try and speed the process up.

I'm going to cut this off there. If you have any particular questions just ask. Bottom line, don't see it as transitioning from low to high volume. See it as adding the capacity to do both.
 
Hey all,

So this is gonna sound vague but bear with me here. I've been in business about 2 years or so, decent 60% profit margin or so, solo shop with my wife helping, one VMC.
Anyway, like most guys I started off super low volume. Overnight turnaround stuff, 1-2 parts. Decent profit since I run without debt. As time has gone on my usual customers have consistently been sending bigger and bigger RFQ's, and we won a decent sized one with with about a thousand parts or so that came to a $28k PO. It was a blessing but meant I had to turn away other customers for a while. My usual transaction size is $2k-$5k.
Be careful turning work away if it will force the customer to search for a new supplier. At the same time make sure you're constantly reviewing all your customers to see who should be catered to and who should be fired. I had one decent customer I had to step back from because I kept doing difficult project that fell outside of my niche and there was no potential for them to give me work in my niche. I didn't burn any bridges but let them know it wasn't a good fit for the time being. They still send RFQ's to see if I'm interested.
I'm really not used to doing that volume but it looks like that's what we're shifting to. I can handle messing up quotes on small jobs since they're a few days of work usually with decent margin and I rarely take a loss, but I'm getting nervous about some of these big jobs where estimating down to the minute of run time is a huge deal. It's no longer "bah looks like an day and a half job, smack that quote and if they like it they like it".

You won't always get it right but you'll find your groove with time. If you're selling 100s of hours don't use your general shop rate.
So, any anecdotal guidance for general principles for these next steps? The profit is nicer, it's not feast or famine, but I'm nervous about tying me and the machine up for a month or more at a time and turning away other customers who I have good relationships with. I'm also not quite ready to expand or hire, I've got a few savings goals to hit before I feel comfortable doing that. I'm nervous too about subbing work, I've done that a lot and the losses from subs being late or delivering bad parts has been rough. Looking for general advice for anyone who's gone through this transition. Am I getting too skittish? Should I stay in low volume where I'm comfortable and know I can make a profit?
Work all the time until you can buy another spindle. The third spindle will be easier than the second.

You're value is in your reputation. Don't sub work you can't verify yourself.

Post up the type of work you do and see if anyone can help you think of ways to do it more efficiently. Can you run job shop during the day then load a fixture to run unattended over night?
 
The reason that Yoke is dooing so good is b/c he is willing to doo whatever it takes.
Obviously he was taking over an already going entity, but he has done WAY more than with what he started with.
(family shop I take it?)

You will find the whole gamut of owners here on this site.

Some are willing to doo whatever it takes to git the job out the door.
Others will not go beyond four 10's as there is fishing, racing, and beer to be drank.

I have yet to figger how any in the first group don't thrive to no end, but some fail.
I have yet to figger out how the 2nd group ever makes it, but some doo ....

I have set up a cot in the shop at times before as well.


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

I am Ox and I approve this here post!
 
Be careful turning work away if it will force the customer to search for a new supplier. At the same time make sure you're constantly reviewing all your customers to see who should be catered to and who should be fired. I had one decent customer I had to step back from because I kept doing difficult project that fell outside of my niche and there was no potential for them to give me work in my niche. I didn't burn any bridges but let them know it wasn't a good fit for the time being. They still send RFQ's to see if I'm interested.


You won't always get it right but you'll find your groove with time. If you're selling 100s of hours don't use your general shop rate.

Work all the time until you can buy another spindle. The third spindle will be easier than the second.

You're value is in your reputation. Don't sub work you can't verify yourself.

Post up the type of work you do and see if anyone can help you think of ways to do it more efficiently. Can you run job shop during the day then load a fixture to run unattended over night?
Thanks, this is super helpful. Can you expound on this?

"You won't always get it right but you'll find your groove with time. If you're selling 100s of hours don't use your general shop rate."

Do you do more of a lump sum estimation like "I think it'll take 4 weeks full time work" and go from there?
So far what I've done is if there's a big package of part numbers I'll skim, find one each of the easiest, the medium, and most difficult parts, go over the quote in depth, and then just use that number to apply to the other drawings.
 
Thanks, this is super helpful. Can you expound on this?

"You won't always get it right but you'll find your groove with time. If you're selling 100s of hours don't use your general shop rate."

I have a project on the horizon that will require about 8,000 hours of machine time per year. If I calculated that many hours based on my normal R&D type shop rate I would never win it. So I find a lower rate I can live with and quote it to win. It's a fine line that will become more clear as you get more experience. The other option is that you find a more efficient way to produce the parts so you can still win the project and your hourly doesn't have to take a hit. It all comes out in the wash anyway.

Your shop rate should take into account all of the cost associated with your day to day. Production rate can be a modified version of that. Suppose you can find a way to run 80 hours of spindle up time and only need to spend 8 hours on set up, part changing, inspection, ect. For instance your rent and wage don't need to be full value if you can be doing something else with your time and your rent doesn't change because the machine is running longer hours, right? You will have more electricity, but that's about the only thing that increased and its a small part of the overall shop rate.

A professional bean counter would probably use bigger words to explain it and lose the bid.

Does that make sense?
Do you do more of a lump sum estimation like "I think it'll take 4 weeks full time work" and go from there?
So far what I've done is if there's a big package of part numbers I'll skim, find one each of the easiest, the medium, and most difficult parts, go over the quote in depth, and then just use that number to apply to the other drawings.

I start with all the normal stuff. Material, any special tooling I'll need to buy, estimated programming time, estimated run time, inspection. ect. I move pretty fast (make mistakes sometimes) and have found that extra material should be built in to the price. Once I scratch it out on paper I'll move to excel, only on large orders, and fine tune. Once I get my price with Qty break out I weigh it against past experience with the particular customer. If I think the market will bare higher prices I increase, If I have lost similar jobs and I'm willing to take less on the job I'll lower.

I can't tell you the last time I underbid a project from an amount of time standpoint.

Lastly make sure you know your worth. There's a lot of guys underbidding themselves and they have nothing to reinvest in their business.

Sorry if this doesn't make sense. I woke up at 2:30AM thinking about work and came in rather than laying in bed. This is your future, if you want it :)
 
I wouldn't take on debt to try and speed the process up.
Agree with everything you've said, except for this ^^^

Unless you're a one in a thousand situation where you have the option of going the grunt way until there is enough built up for a cash purchase, not taking on debt is something I just can't see happening.
Family money, very lucrative contract, customer that's willing to foot the bill? Yes.
Otherwise no friggin' way could I picture that working out without taking on debt.
Do not go stupid with your purchases, but using outside financing for machinery is NOT the boogie man as everyone is making it out to be!
Don't finance cutting tools, inserts, drills, hand tools etc. but machines are different.
 
Hey all,

So this is gonna sound vague but bear with me here. I've been in business about 2 years or so, decent 60% profit margin or so, solo shop with my wife helping, one VMC.
Anyway, like most guys I started off super low volume. Overnight turnaround stuff, 1-2 parts. Decent profit since I run without debt. As time has gone on my usual customers have consistently been sending bigger and bigger RFQ's, and we won a decent sized one with with about a thousand parts or so that came to a $28k PO. It was a blessing but meant I had to turn away other customers for a while. My usual transaction size is $2k-$5k.

I'm really not used to doing that volume but it looks like that's what we're shifting to. I can handle messing up quotes on small jobs since they're a few days of work usually with decent margin and I rarely take a loss, but I'm getting nervous about some of these big jobs where estimating down to the minute of run time is a huge deal. It's no longer "bah looks like an day and a half job, smack that quote and if they like it they like it".

So, any anecdotal guidance for general principles for these next steps? The profit is nicer, it's not feast or famine, but I'm nervous about tying me and the machine up for a month or more at a time and turning away other customers who I have good relationships with. I'm also not quite ready to expand or hire, I've got a few savings goals to hit before I feel comfortable doing that. I'm nervous too about subbing work, I've done that a lot and the losses from subs being late or delivering bad parts has been rough. Looking for general advice for anyone who's gone through this transition. Am I getting too skittish? Should I stay in low volume where I'm comfortable and know I can make a profit?
In my opinion, the only way to make any money in this business is to get as many "high" volume jobs as possible. To me that means any job over 100 units/year, which is still low volume for many. I consider low volume work as a loss leader/audition/favor to my customers in order to win the production jobs when they come up. As for pricing, I always shoot from the hip and aim high. No need to count minutes or seconds on a job when there is so much padding that you could never screw up. I would rather lose 80% of my bids than bid lower. In reality, I rarely lose a bid even though I'm higher cost. Sometimes I think of a number in my head and just double it to see if they bite.
 
Agree with everything you've said, except for this ^^^

Unless you're a one in a thousand situation where you have the option of going the grunt way until there is enough built up for a cash purchase, not taking on debt is something I just can't see happening.
Family money, very lucrative contract, customer that's willing to foot the bill? Yes.
Otherwise no friggin' way could I picture that working out without taking on debt.
Do not go stupid with your purchases, but using outside financing for machinery is NOT the boogie man as everyone is making it out to be!
Don't finance cutting tools, inserts, drills, hand tools etc. but machines are different.


I started with nothin', and w/o borrowed money, I'd still have nothin'.
And there is very little incentive greater to git'cher'ass to werk than debt!

I just found it hard to believe how long it took to get out of it!
Most of my work went to China in 2001, rendering most everything that I had here worthless.
Then 2009.
But I wouldn't be where I am w/o it.
Just be careful with it.


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

I am Ox and I approve this here post!
 
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Agree with everything you've said, except for this ^^^

Unless you're a one in a thousand situation where you have the option of going the grunt way until there is enough built up for a cash purchase, not taking on debt is something I just can't see happening.
Family money, very lucrative contract, customer that's willing to foot the bill? Yes.
Otherwise no friggin' way could I picture that working out without taking on debt.
Do not go stupid with your purchases, but using outside financing for machinery is NOT the boogie man as everyone is making it out to be!
Don't finance cutting tools, inserts, drills, hand tools etc. but machines are different.
Business is all calculated risk. If you don't calculate, you'll fail. If you don't take risks, you will, at best, remain stagnant. That's been my experience.

I financed all 4 of the mills I've bought (all new), my first screw compressor, and the building we put up to put all this stuff in. That's somewhere around $900k worth of risk for a 4 person shop. It's all paid for now, to include our home and cars and toys, so in my case it all worked out quite well. I would have NEVER been in the position I'm in now if I didn't take those risks. Someone would have out competed me and I would have been tossed to the side, just like the shops I out competed to get the work that we did.

Regarding quoting repeat production work, I actually program it and run the program in air. I make some mental adjustments just based on watching the mill run. If there are features that I'm not sure we can do, or how long they will actually take, I run test parts until I know for a fact I can nail what we need to nail, short of having custom tools actually made. I know exactly what our actual overhead is based on a spreadsheet I update every month. Get outsourced stuff quoted. Then everything gets plugged in to a spreadsheet that I've developed (and vetted) over the years and I get my numbers.

I quote $/ea at each qty the customer requests, and then I break out NRE for custom tooling, etc.
 
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I started with nothin', and w/o borrowed money, I'd still have nothin'.
And there is very little incentive greater to git'cher'ass to werk than debt!

This^^^

Business is all calculated risk. If you don't calculate, you'll fail. If you don't take risks, you will, at best, remain stagnant.
I would have NEVER been in the position I'm in now if I didn't take those risks. Someone would have out competed me and I would have been tossed to the side, just like the shops I out competed to get the work that we did.

And this ^^^
 
This thread is gold. I am in a similar position right now; I hooked a whale and now have a million things running through my head.

How do I find time to keep up with my other products?
How do find time to finish my building and roto-phase?
I need to buy a wire EDM, what kind?, how to structure financing? ...oh wait, my building isn't finished!

I know for 100% certainty that I can and will deliver but there is a lot to learn and real fast.

@Covenant MFG is your big order for parts that you have previously made? Congratulations btw!
 
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Getting good repeat production jobs with long lead times is about the best thing next to having your own products to make and sell direct.
That's my back up plan if my main customer ever stops ordering.

Unfortunately many companies want ISO and other such BS these days, thankfully my last couple customers still don't require it.
It is weird that some would rather get garbage parts from ISO shops, than perfect parts from a shop without ISO.
 
I certainly won’t fault anyone for taking on loans to get running. I guess I will amend my comment by saying treat it very carefully. I’ve had jobs get put on hold for several months and if I needed to be making big payments I would have been in trouble….

You’re unlikely to hear from the guys who took loans and it didn’t work out. They’re no longer in the owner/manager section.

I’m very curious to hear from more of you what your advice to OP is.

This is a great thread already and could be a real gold mine with so much experience chiming in.
 








 
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