This presentation will cover some of the issues that each of you may have in the Job Costing and Estimating areas.
Who Has More than one person in the company Quoting Parts?
Rarely do two different estimators ever come up with the same exact price.
BIAS in the quoting process, because of people’s individual experiences
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Where can quote consistency come from?
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People or Software?
People – I Mean Processes.
Controlling people is impossible, but processes can help People become more consistent.
Software – I’m talking about Company Standards. Operational Formulas, Default Times, Etc.
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Both!
Can significantly improve consistency of estimating and give you the ability to have almost anyone that can read a drawing and has basic manufacturing experience be able to quote.
Lets talk about the Quoting Process,
There are many different mindsets and mentalities when it comes to quoting parts.
Job shop small run make to order vs Production run for example
Every Estimator has a price or time in their mind before quoting even starts.
The quoting process merely facilitates the proving or disproving of that initial number the estimator thought of……
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Time
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Or
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Money
Which One did YOU Think of First?
What about the different FACTS in quoting.
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Did anyone think about any of these FACTS, OR anything like these?
*******REWARD*******
THESE ARE FACTS, Most of which cannot be disputed.
Two different Estimators think differently based on their history. Laser VS Plasma
Thinking in this mindset will help to take the bias out of the quoting process.
How do we use this though?
Operational Formulas
Memorize this!!!! LOL
By utilizing facts about the part we can join them with company standards for production and develop Consistent Time Estimates!
MIE Trak Pro Helps to Generate or Facilitate Complex Formulas.
We will talk a little more about this later.
Lets look at a part again.
Here’s a Drawing of a Gusset.
What information would you use to quote this part?
When first looking at quoting a part
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Linear Inches
Speed of Cut (Inches per minute)
Number of Pierces
Seconds per Pierce
Number of Bends (if any)
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From the information we have, an experienced estimator should be able to quote it for their facility.
Each one of your estimators should be able to come up with the same price.
Or close to it.
What did we forget?
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Setup times,
Where do these setup times come from?
The company standards!!!
Again, operational formulas can be developed to calculate setup time.
There are some things to consider when looking at material costs.
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-Nesting
-You don’t know if you will be doing any other projects with this material.
-If its all part of the same assembly then it is ok…..
-Sheets and Common Materials
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Some shops particularly smaller Job Shops think in sheets because that is how they have to buy it.
-Typically they do not keep stock of their material either.
This is OK!
Production Shops tend to think more in pounds, they look at the individual part weight.
This is OK TOO!
But what is the main thought I’m trying to get at here?
*****Should I amortize my entire sheet cost?
Talk about Amortization
There are some things to consider when talking about outside processing.
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-Lot Pricing
-Should I base my estimate on running other parts with this one or a larger Lot? Not a good Idea!
-You don’t know if you’ll have any other blue anodize parts at that time.
-If you can keep parts on a shelf run an entire OP Lot Quantity and take advantage of the Price Break of 100 Parts vs 1 Part in a lot. (This isn’t LEAN)
Anodizing is pretty reliable and, quote, unquote EASY. What about something tougher, say Machining Outside.
***Are your vendors giving you price breaks that you can flow to your customers?
****Can you keep track of all those price breaks on all of those items?
Don’t spend too much time here!!!!! Don’t want people to pick this apart.
Like we said before, those FACTS get plugged into our operational formulas.
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Laser
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Press Brake
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Outside Processing Cost
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Material Cost
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Oh, and Setup Costs
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Can anyone guess what this crazy mess equals?
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This formula helps maintain the company standards. The Estimators don’t have to think about them.
EXCEL SPREADSHEETS – Who Understands Them, EACH PERSON HAS A DIFFERENT ONE?
There is something I haven’t talked about though.
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What does this represent? Any Ideas? –Shop Rate, or Sell Rate-
When you quote are you quoting a Sell Rate or a Shop Rate that consists of Labor, Overhead and Profit.
What goes into an hour of Labor or Production Labor to be more specific?
What’s it Made Of?
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Employee Wages (Direct Labor)
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Overhead – We will talk more about that in a minute
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And Hopefully Profit, Remember we’re still talking about the estimating side here so we need to be thinking about making money.
Most Shops Think of 1 hour of Labor like this bar.
$75 per hour, End of story.
Didn’t we identify some other components to that rate?
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Some Shops get to the point where they have at least identified this much.
Also this is specific and different depending on the department, Keep that in mind.
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Very Few Companies Figure out the bottom Figures.
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Once these are created, they become part of Company Standards.
Why is this Important at all?
**********Come Up with Examples Here*************
We’ve talked about how knowing all the different components to your shop rate is important.
We know what Profit is and Direct Labor rates are somewhat easy to work out.
So, Lets talk about the Hard One, Overhead
Like mentioned before there are different types of Overhead
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Variable Overhead – This form of Overhead is directly affected by production load increasing or decreasing
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Fixed Overhead - This form of Overhead is not directly affected by production load increasing or decreasing.
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Operating Overhead
Some people also include operating overhead into this category as well.
-There are Several Approaches on how this information should be gathered and used.
-The internet is a great resource on different methods of Coming up with this data
The key here is Percentage of Total based on average usage over a period of time.
The Laser uses more Electricity than the Shipping Department.
{Don’t go Overboard.}
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Knowing your hourly overhead and your direct labor,
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Your company can better identify if there is profit in an estimate.
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One Thought though, Don’t base your labor on 3 times your material costs.
This does not work for many scenarios.
Who here does a Job Cost Analysis After the Work is Completed?
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Do you look at all of this information? How about Shipping?
How can we get these numbers? Wait for replies….
Direct Labor – Shop Floor Data Collection
Overhead – From Shop Floor Direct Labor Information. Only if the Overhead rate has been calculated from slides before
Material, Hardware, OP costs – Lump together
Vendor Invoices or Historical costs
Talk about Costing Methodology
-Last Cost
-Average Cost
-Standard Cost
How do you get the costs to be able to compare to the quotes/estimates?
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Labor Collection benefits
Cost accumulation of Direct Labor and Overhead
Tracking of the Parts through the production process in real time
Scheduling and Capacity Planning
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Bill of Material Usage
Cost accumulation for the Bill of Materials
Inventory Control
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Methods of collecting this data.
For Labor and Overhead
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For Bill of Materials the same with one exception if you wanted to Backflush based on the Labor Collection record.
The Goal is to Figure out whether or not the company made Money,
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So, What we’re Looking for here is profit.
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Can I find the profit in this scenario?
I know it seems far fetched but the circle is a somewhat accurate representation of what a lot of companies have to analyze.
They have information but its not organized and or its information at a very high level that doesn’t allow for the problem that caused the profit loss to be found.
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In this scenario we can easily identify EACH area of the Job and see exactly where that profit is.
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This also allows for us to investigate possible problems in a specific area.
Say Outside Processing costs were more than expected due to Expedite costs and Shipping.
It would have been hard to identify that before.
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When Should You Analyze a Job?
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Who Should Analyze the Job?
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Can I Start Performing Job Cost Analysis Tomorrow?
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What Should I be Looking For?
Beyond the obvious 1 of analysis Here are some other ways to look at job costing on a higher level.
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Company Level Reporting
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Department Level Trending
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Work Center Level Trending
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Employee Specific Reporting
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Part Type Trending
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Part Specific Trending