Why my head hurts...
 

So after considerable leg work I get an opportunity to quote a large manufacturing job (1.6 million pieces / year.). It requires cutting three aluminum extrusions, de-burring them, etching them, press fitting them together, then sealing the assembly with epoxy.

I even got a "must hit" target price! I tear into the quote with a very sharp pencil knowing that I need a job like this very very bad. My thought process is "I'm getting this job, we'll make it work one way or another".

Then the brakes slam shut and the rig jackknifes to a halt as reality sets in. The material alone (at rock bottom estimates) will consume all but $0.02 to $0.06 of the entire target price.

It is at this point I realize my competitors on the project are in China and India.

Good times...good times.

Damn, just a guess but you can't even come close to breaking even can you?

That sucks.

Figure out what it will actually cost to make. Build-in a reasonable profit for yourself. Quote that number. Sell them on your lessened transportation cost, more reliable supply chain, and higher quality product.

There is no way China/India can continue to beat us on manufacturing costs long-term, there is too much inflationary pressure.

A labor force @ $10/man-day offsets a good bit of inflation.

You've got to focus on U.S. Mfg. strengths: quality, low rejection level, on-time delivery, quick delivery, no customs to worry about, etc.

I've decided to pay 4X overseas cost for acid-etched foil shapes done right here in MA because no one is going to rip me off and I'm going to get what I ordered when I ordered it to the spec I ordered.

Yep, I'm going to quote it anyway and request a sit down to sell our benefits but it's annoying as fukc to keep hitting this wall.

Just venting.

Crappy, but yeah, I would sell it on your COMPANY. You are in the US, you have a track record, and blal blah blah. Drink lots of coffee before the meeting.

In the past I wondered why things cost what they do. I didn't consider it until I started doing studies for customers on how to improve operations by reducing failure. The first step is always understanding where costs are coming from. It truely is amazing.

• Labor (Direct and Indirect): operators, repair technicians, supervisors and management

• Material Costs and Production Waste: scrap, replacement product , lost production, replacement parts, fabricated parts, shipping, storage, inventory replenishment, quality control

• Services: emergency hire, sub-contractors, travel expenses, consultants, utility repairs

• Equipment: energy waste, start-up costs, shutdown costs, emergency hire, damaged items

• Additional Capital: replacement equipment, new insurance spares, buildings and storage

• Consequential: penalty payments, lost future sales, legal fees, loss of future contracts, environmental clean-up

• Administration: documents, purchase orders, meetings, planning, schedule changes, investigation and audits, invoicing and matching, accounts payable / receivable

And these are just the costs when things go wrong, this doesn't even touch upon all the other costs associated with running a business.

Ofetn the one area that can be quickly effected is the labor rate - we can't do much in this country but over seas it is a different story.

The other thing to consider is that the job would help reach your capacity and give you some income for the books. I'm not saying that doing production at a loss is smart but if it covers all the operating expenses and provides a little margin for profit than it may be what is needed for a company that is struggling. Any work is better than none...

A buddy of mine with a machine shop told me that sometimes the Chinese parts cost less than his material costs for the same part.
-Chris

Thanks for the reminder, I need some more stuff cut.:)

Are you selling your hats now. ;)

Hey, Len,

Can you take advantage of the weak dollar and sell some of your superior machined goods to Europe?

T-Rex. Real copper foil hit with a MAPP torch. Applying for a design patent.

http://forums.pelicanparts.com/uploa...1197423501.jpg

Len, you need a good accountant to help you figure your real and total costs of production. You might already be selling at less than your real cost. You might need a mass seller but margin killer to help spread out your overhead. If you sell at higher than your variable costs but less that your total costs you might actuall make more money. It just depends on what else you've produced and what your overhead is.

Len, forget the above. My (MBA) wife just told me to stop giving you advice and to finish my year end billing IMMEDIATELY. (Oh, she also said forget the variable costs. I'm not sure what she meant, but she's the bean counter in the family, not me.)

Too bad Len,
I agree, you gotta bid anyway.
I've been in similar situations where I was given an impossible target price ($/SqFt)
Go in with an open book concept; give them everything right down to the last detail.

Get shoulder to shoulder with the client instead of across the desk, they'll likely help you find a way to meet their target or realize they've lowballed you.

Problem in construction; there's always the odd job where some idiot will fall for the lowballed target offered? Happens all the time.

Keep your chin up! You're the best at what you do and no one can take that away from you!

Comparative advantage. They might beat you on cost, but you can win on quality, delivery and response. There is a niche for you. If you want to slug it out on price, someone will always do it lower.

We typically quote jobs that are too hard for other shops and are never the low bid. There is a lot of business out there if you know where to look.

If you have the opportunity I would ask if they are interested in quality, reliability, service when they evaluate vendors. It sounds like they are putting cost as most important factor, your job is to rearrange the priorities so that your strengths are at the top of their evaluation criteria. Submitting the bid and hoping for the best is good but you will be much better off really working with them through the process so that you can really show your strengths. I was always told that to win the RFP you have to write the RFP.

I think I would go with a cost plus strategy to show that you are being aggressive and interested in doing business with them. Perhaps they buy material in quantities larger than your firm and might be able to partner with them to lower your costs?

Great Suggestion!

bid in Len. The reality of doing business in India is beginning to hit my company now. Unreliable, difficulty in communications and delays like you wouldn't believe. We shipped some medicinals there for a small trial, three and a half weeks later the freakin goods haven't yet arrived! "Where are they?" says us "On the road" says them.