Job Shops and OEM’s Find Lean Solutions In Effective Cost-Estimating

David Sepavich, a senior account manager with MTI Systems, (www.mtisystems.com) has seen job shops transformed with lean cost-estimating technology. He suggested, “Job shops must eliminate waste and proactively seek to identify and implement internal improvement initiatives.” One of the most overlooked opportunities to eliminate waste and improve the value stream is achieved when applying lean practices to estimating and quoting process. When using a bid/win ratio as a measure of the estimating efficiency, most job shops win about ten percent (10%) of the jobs bid. The translation of this data means for every forty hours of estimating effort, thirty-six hours are wasted. “Compounding this gross inefficiency is the fact that estimating typically involves the most experienced and valuable employees,” according to Sepavich.

MTI Systems developed Costimator with Cost Modeler and has increasingly found those job shops with lean initiatives most likely to request demonstrations. Using this powerful tool, numerous job shops during the twenty-eight year history of the West Springfield, MA-based firm, have been able to:

  • Complete estimates with or without a drawing, in a fraction of the time (time-savings a core value in elimination of waste and lean principles.)
  • Utilize estimators with less manufacturing experience (the technology is pre-built with numerous models and algorithms, allowing lower cost estimators to achieve winning and profitable estimates.)
  • Achieve certainty that estimates are both accurate as well as consistent
  • Select from dozens of pre-built models, edit them, or build unique models ensuring that results are consistent and match manufacturing methods

"When a customer sends us a part drawing, we can make an estimate with Costimator, play 'what if' and make appropriate recommendations on material and design. We can show how engineering changes will affect cost. That kind of speed combined with the reliability of a computerized quote...makes this technology an important member of our sales team,” noted Wayne Carroll, President of Carroll Machine.

Quantifying the Lean Impact of Effective Cost-Estimation

Job shops must stop losing as much time estimating when only a fraction of the jobs quoted are action won. Similarly, job shops must stop using (or trying to hire) experienced manufacturing estimators, when there is no correlation to jobs won.

Cost-Estimating for OEMs find Lean Savings in the Design Cost

Sepavich explained that there is also a Lean Costimator solution specifically designed for OEMs proactively seeking to identify and implement lean improvement initiatives. “One of the most overlooked and visible opportunities to eliminate waste and improve OEMs value stream is in mapping the practices of the "design cost" estimating and outsource quoting process. Understanding what drives the costs of products early in the design stage has saved companies millions of dollars. Costimator OEM enables these companies to determine what a part "should cost", positioning buyers in a favorable position during cost negotiations,” insists Sepavich.

Achieving these significant cost reductions easily and without using most experienced manufacturing human resources is possible because Costimator has a Feature Estimating cost models. OEMs are able to complete estimates in the design stage, with or without a drawing, in far less time and match the supplier’s manufacturing methods required. Rather than waiting for the manufacturing process and discovering less attractive margins than anticipated, OEM’s want to know the cost of parts in the design stage. A central aspect of continuous process improvement is the ability to benchmark these data to drive down the cost of the parts outsourced.

John Kagan, Manufacturing Engineering Manager at Lenovo, suggested, "The main purpose of using Costimator is to understand what your costs are and what they should be. Once you understand that, you are in a good position to achieve those costs. Knowing what you should be paying when you go into a negotiation gives you a lot of strength."

Lean Best Practices

Supply Chain Managers must know the verifiable actual cost of outsourced manufactured items before negotiating with a supplier. Too often these purchasing gurus discover they have spent valuable resources sending RFQs to multiple suppliers. These practices place painful, costly, and wasteful delays in the supply chain process. Sepavich scolds, “It is an inefficient use of both the company’s time and the supplier’s high value resources. Too often at the end of this process, Supply Chain Managers really do not know if they actually have reached the best price.” Whether during ISO certification, Lean initiatives, or Six Sigma implementation, the ability to measure the current state versus improvement is essential; winning profitable jobs is a bottom-line factor to quantify.