Lost the big job, stuck with the piddly crap

I'm wondering what you guys would do in this situation. It's kind of a first for me:

I had a job we ran pretty consistently for the last 3+ years. It was a pretty good job for us, and was basically enough to cover all of my basic overhead and was very regular. The material cost was significant so it was a pain for cash flow when it started, but by now it's not really an issue.

Anyway, I hadn't seen a PO for quite some time. I sent an inquiry and the PA informed me they switched vendors for a better price. And BTW, I was "welcome to requote". I'm not interested in a race to the bottom. Margins were tight enough on that job. I think we have to let it go. Someone was making them before me, so turnabout is certainly fair play.

Now, that leaves me with about a dozen or more kind of piddly jobs I run for them. I didn't really want those jobs, but took them to keep them happy. We make money on them but it's nothing outstanding.

So what do I do with these parts when another order comes in? Do I tell them the price is going up since the current pricing was based on much larger overall sales? Do I tell them to piss off and take all of their work somewhere else? I don't think I have a whole lot to lose with them.

And finally, did I do the wrong thing by pricing those parts favorably based on their total volume of work? Should I have priced every job independently and let the chip fall where they may? I never dealt with pricing directly as an employee, but we sure went through a lot of BS to keep the hand that fed us happy.

bummer.
Well the price on the piddly parts is what kept them in your shop. Sounds like this might not be a good customer. Might be a good one to lose.
You might explain that the pricing on the other jobs was based on the good job keeping the "lights on", and they will be re evaluated, case by case.
It doesn't have to be a race to the bottom, find out what equipment the new guys are using and beat them at their own game. Either is is worth investing in the process, to take the labor out of it, or it is not. Only you can answer.
AS 2outof3 says: is it worth a $5/hr payment on a new whiz bang machine?

Kinda fvcked up that they didn't give you a heads up, to requote, before pulling it.

ewlsey said:

...did I do the wrong thing by pricing those parts favorably based on their total volume of work? Should I have priced every job independently and let the chip fall where they may?

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There are plenty of examples of favorable pricing based on total volume, for example the more weight of steel or aluminum you order each week, the lower the price per pound. Work gets slow, the weight falls off...and presto, your price is two or three columns back to the left. That's not quite the same thing as permanently offering a special price to a customer based on his having bought a mill run two years ago--"that was then, this is now." Because they were the big account, you were subsidizing their other work. I've made that mistake--and who hasn't?

You don't have to tell them to piss off. Requoting their piddly jobs will send the same message, albeit in a professional way. If the big job should come back you'll be off on the right foot. If not, at least you won't be doing their less-than-gravy jobs for nothing.

I heard my entrepreneur/boss say that toyota expects a year over year percentage reduction in cost from suppliers.

mkd said:

I heard my entrepreneur/boss say that toyota expects a year over year percentage reduction in cost from suppliers.

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Yeah that's a standard practice in high volume automotive work. This ain't that...

The real bitch in automotive work is when you quote it they give you a 3 or 5 year projected volume. You build your capability based on that volume. The OEM will send out auditors to make damn sure you are building your capacity to meet their projections. But, those projections are quite often dreams or outright lies. So it's a constant struggle between the supplier trying to invest as little as possible to avoid over extending themselves when the orders don't come and the OEM demanding capital investment to guarantee they can make their goal without a bottleneck.

Automotive is like a different world. If you've never played in that realm you just can't understand. Many times you find that the OEM will actually own a share of the supplier. It's the only way they can both be sure no one is trying to fuck the other. That's really common with Japanese auto makers.

I would definitely not go with the emotional piss off response as satisfying as it might be. What happens if the new vendor screws up the first order? What if their more aggressive pricing pushes them out of business? Or they simply raise prices after the first batch because they realize they were too low.

The customer would then need parts FAST you are the one who could provide them easily, maybe at a higher price. If you have told them to piss off on the other parts they may pass you over.

Raising the price on the other parts is legitimate at any time before accepting an order if there is no contract in place. Nothing wrong with raising the price on the "loss leader" jobs if you lost the big job. Knowing of course that you may lose the work due to the price increase.

Pattnmaker said:

I would definitely not go with the emotional piss off response as satisfying as it might be. What happens if the new vendor screws up the first order? What if their more aggressive pricing pushes them out of business? Or they simply raise prices after the first batch because they realize they were too low.

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I agree. I suspect that a bigger shop bid these parts as filler work. Things are kind of on their ass here right now.

ewlsey said:

I'm wondering what you guys would do in this situation. It's kind of a first for me:

I had a job we ran pretty consistently for the last 3+ years. It was a pretty good job for us, and was basically enough to cover all of my basic overhead and was very regular. The material cost was significant so it was a pain for cash flow when it started, but by now it's not really an issue.

Anyway, I hadn't seen a PO for quite some time. I sent an inquiry and the PA informed me they switched vendors for a better price. And BTW, I was "welcome to requote". I'm not interested in a race to the bottom. Margins were tight enough on that job. I think we have to let it go. Someone was making them before me, so turnabout is certainly fair play.

Now, that leaves me with about a dozen or more kind of piddly jobs I run for them. I didn't really want those jobs, but took them to keep them happy. We make money on them but it's nothing outstanding.

So what do I do with these parts when another order comes in? Do I tell them the price is going up since the current pricing was based on much larger overall sales? Do I tell them to piss off and take all of their work somewhere else? I don't think I have a whole lot to lose with them.

And finally, did I do the wrong thing by pricing those parts favorably based on their total volume of work? Should I have priced every job independently and let the chip fall where they may? I never dealt with pricing directly as an employee, but we sure went through a lot of BS to keep the hand that fed us happy.

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By chance are these the same jobs you were having forecast issues with previously?

My experience with big business. They use "part packages" to get you to take on the entire package knowing perfectly well, you will use the winners to average the losers. They then will come back and strip out the steaks and leave you with skin and bones then tell you that you can't take a "peanut butter spread approach". Seen this first hand from fortune 200 companies.

My recommendation is 60 day price increase notification and let the cards fall where they may. Don't risk your business if the numbers don't add up especially with an organization that isn't even willing to notify you when the pull out a long running job.

countryboy1966 said:

By chance are these the same jobs you were having forecast issues with previously?

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Yes. And I suppose the issue was related to them ramping up a new supplier. I never did say anything to them. It's a moot point now.

Never burn your bridges.
Evaluate your prices based on current volume and treat them like any other customer.
They might be back with even more soon.
If the job/ customer is really worth it, you might go and see them. Tell them you can't deliver your quality for less, but you can maybe serve them better for the same price by keeping some emergency stock or something along those lines. Tell you that you value their work and that you would like to go the distance with them.
No licking ass, but let them know what you bring to the party.
Good luck

It could be the new place just underbid them as some others said. I know it doesn't help you, but I see some of the "quotes" from my work and I think you guys are nuts, we will never make that part in that time. But... I don't really know what happens behind the scenes (with us) maybe the shoprate is $300/hour, so that 2 hour job is more realistic as turning a profit... who knows??

Crappy feeling when you lose the bread and butter backbone jobs.

I would not rush to underbid...but I'd consider re-evaluating.

That is see how the parts can be made for less with new tooling...or in larger quantities, with better forecasts and blanket orders so parts can be done as "fill in"...see if there is something you can add that cost you nothing or little, but gives you a leg up...packaging, engraving part numbers...

If the numbers work you move forward, if they do not...stay pleasant and hold your ground.

Not a race to the bottom, but sometimes a new approach to an old job you will find a way to cut cost and keep same profit...sometimes even more.



As to the piddly crap...Price it fair and keep doing if they give to you.




FYI- I lost one of my larger clients some years ago...came in one day demanded better pricing, On time deliveries or he was taking "his tooling, his prints and leaving".

I reminded him Our late deliveries were based on the fact we did not start the day he placed his order, but the day he paid his "overdue invoices". I also asked him what tooling and prints as he never paid a bill for either...
He took his job elsewhere. I had known he was pricing around as he was sending RFQ's to my friends shops and they forwarded to me. RFQ's consisted of pictures of parts and limited prints he had received over the years.
Two years later I started getting some of the work back as his "New Shop" became busy with "other work" leaving him short on parts and quality. This time around he paid in 30...we met out deliveries and balance of work came back...plus.
In short, sometimes better pricing of other vendors is for a reason...less quality and open time come to mind.

The company I work for manufactures and sells its own product line(s). There are parts we make that we break even on when we sell them. The reason we do this is because we need to offer a complete product line to our customers and our pricing needs to be at least semi-competitive. No one wants to order 3 components from us and 2 from someone else. The times I have heard it discussed by our management they seem to think this falls under "customer service"......we need / want to be a full service, one stop shop for our customers.
..The reason I say this is because it seems reasonable to me that you were attempting to do something similar by taking on jobs from your customer that were either a PIA or just didnt pay that well in order to satisfy your customers needs and thereby build some loyalty. I dont think the practice is uncommon. I think you should bid those jobs with todays new reality in mind. If the customer ask' what is going on simply tell him.....I am an average guy working in a shop and I am familiar with the concept. Certainly a guy that is higher in the food chain (your customer) should be as well. Just keep in mind......as large of a world as it sometimes seems to be....it can get small real quick if you start pissing people off. I dont remember the numbers....but I know it is said that a satisfied customer will tell 1 or 2 people how happy they are but a pissed off customer will tell everyone they know.
A former employer of mine found that out when I grenaded his bid for a job we had out for bids. No way did he know 20 + years ago when he was screwing me out of my vacation pay and laying me off for 3 days to avoid paying me holiday pay that I would return the favor......X 500.

Look for better work elsewhere, requote at a price that you're happy with when they reorder their other stuff you don't like as much.
I lost my largest customer before, and kinda awaiting to lose the current largest sooner or later(kinda surprised it hasn't happened yet), sucks for a while but life goes on. Though next go around I'm planning to use up the time to focus more on my own products that I never have enough time to pick at.

Best of luck either way.

There are also other factors that could have motivated them to switch vendors. Quality and on time delivery for instance. You might want to double check how you were doing. Customer service is another factor. I know I've dropped vendors In the past just because I didn't like some bitches attitude on the phone.

It could also be that your competitor threw in a case of scotch with their quote. Never under estimate the power of a case of scotch.

Might be worth re quoting the job with customer supplying material. You mentioned the material costs were high. I assume you mark up those materials. It will suck losing that mark up but it might make the difference and removing any risk of you getting stuck with material should make the job better for you. Maybe the customer who does not have to worry about getting stuck with material can buy bigger quantities and get better material pricing.

QT: [do I by pricing those parts favorably] Think you need to make the process better so making the numbers or forget about that job. Think about your job hour rate and decide if it is current with what normal and logical. add up tooling costs and see if you are getting the best for your dollars. Are you sharpening the easy stuff or throwing away good tooling. Then comes the hard part.. is some other outfit taking the buyers family out to dinner once a month? I saw that at the big shop where I was in charge of tooling and our buyer who was the buyer for grinding wheel would deliberately get low on grinding wheels so his buddy could get the order. Yes the wheels were not as good and cost more.

Pattnmaker said:

I would definitely not go with the emotional piss off response as satisfying as it might be. What happens if the new vendor screws up the first order? What if their more aggressive pricing pushes them out of business? Or they simply raise prices after the first batch because they realize they were too low.

The customer would then need parts FAST you are the one who could provide them easily, maybe at a higher price. If you have told them to piss off on the other parts they may pass you over.

Raising the price on the other parts is legitimate at any time before accepting an order if there is no contract in place. Nothing wrong with raising the price on the "loss leader" jobs if you lost the big job. Knowing of course that you may lose the work due to the price increase.

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Agreed. The primary reason you haven't lost the piddly orders is they want their goto guy in the event the shit hits the fan with the new supplier. It sucks, but I agree, reevaluate your costs and provide new pricing. The new supplier has their hands full right now so strike while the iron is hot.

In the meantime consider investing in productivity improvements and beat your competition with better pricing and lower costs.

I sent an inquiry and the PA informed me they switched vendors for a better price. And BTW, I was "welcome to requote".

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This kind of shit rubs my crawl. Why in the hell didn't the PA at least give you a call, and a chance to match the new price before changing vendors behind your back?

I know we all have to deal with them, but purchasing agents can be some slimy sonofabitches - trying to stick a feather in their cap, all the while screwing with a shop's livelihood without even giving them a chance to keep the work.

I'm guilty of not doing it enough, but I think we as shop owners should somewhat regularly tell our customers how important their work is, and without it our business's would be in trouble. At least if the buyers knew this they might be more forthcoming about wanting to switch vendors for a better price.

I have always told my customers that I don't want to lose a job over a few percentage points in price, so please don't forget about me if things start changing.

I would try to get over and see the PA, let him know without the volume job you're probably going to have to adjust prices on the other low-volume work.

With the state of manufacturing these days, without a good bit of work to take it's place, I would be willing to match the new vendor's price...if nothing else just to put the pressure back on them. I guarantee the PA told them the price they needed to be at to get the job (which was probably about 5% less than your price), so by offering to match their price, maybe at least you could find out exactly what they're charging.

If he throws out some number that is too low, just get wide-eyed, maybe laugh a little, and admit that even though you said you would match the price, by doing so would run you out of business in less than 6 months, and there's no way you're going to do that.

Tough situation for sure, it's happened to me. I lost 10-year running, intricate lathe parts to China. I always figured the parts were complex enough the bastards would never get them right, but after 8 years I'm guessing they have.

ToolCat

welcome to the Walmart world.
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you can reduce your price 5% and find out Walmart finds somebody else at 10% lower price and willing to take a loss to get the business.
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happens to big companies too where a yearly contract expires and not renewed and literally 50% of business is gone and company ends up laying hundreds of people off.
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by the way life is not fair. often one company will give gifts, or offer a job to decision makers. for example they tell decision maker if they ever loose their job they can work for their company at higher pay. nothing in writing of course. and free gifts are often given basically bribes. or the decision makers is given personal discount rate to buy anything they sell. many many ways to loose business. i have even seen decision makers invited to parties with many pretty young women to party with. not the type of party you bring the wife too