Getting Estimates Right the First Time
"Responding to requests for quotes with manual estimates was costing a shop specializing in high-tech jobs profits with under-bids. Moving to a cost-estimating system not only made their bids closer to actual costs, but offered customer benefits as well."
Despite job estimating experience, Northeast Manufacturing, Inc., Stoneham, MA, found it would sometimes contract for a job that became a "loser," not hitting profitability estimates. It turned to a cost-estimating software and found it not only decreased its losing-job rate, but the application had other benefits as well.
In 1951, when Boston's aerospace and high tech manufacturing sectors were in their infancy, Harvey Lobdell moved a few second-hand metalworking machines into the basement of his suburban home and founded Northeast Manufacturing. Since then, the company has grown into one of the region's leading contract machine shops.
The 9/11 Slump
The company thrives by guaranteeing quality and aggressively cultivating new customers in emerging fields. The firm met the general economic and manufacturing slump that came on the heels of the September 11 attack with fast and accurate cost estimating.
"Since 9/11, it seems like there is half as much business out there, and it's twice as competitive to win it," Chris Lobdell, the company president, said.
With making contract bids that promised profits, it was crucial for the company to improve its estimating. Northeast relies on its Costimator Computer–Aided Cost Estimating System to produce accurate bids to compete and win.
The company specializes in aerospace part production as well as electronic communications equipment, scientific measurement devices, and medical manufacturing, such as cranial and spinal implants.
Company estimators respond to requests for quotes for one-off items such as prototypes, parts manufactured in 5,000 piece lots, some with year-long, just-in-time schedules.
Aggressive – And Accurate – Bids
"We don't want to lose any business, so we bid aggressively," Lobdell said. "At the same time, we don't want to misquote a job, underbid it, and just break even or lose money. Costimator helps eliminate underbids and gives us a handle on manufacturing costs."
The estimating system is from MTI Systems, Inc., Springfield, MA.
Using Costimator and online material pricing options, estimators quickly generate what-if scenarios for manufacturing, tooling options, and identifying the fastest and least-expensive processes.
Northeast turns around many of its quotes in an hour or less. RFQs for complex parts that require high-tolerance machining operations – often machined from titanium, exotic stainless steels, or expensive materials – are frequently processed within the standard customer-required three-day deadline.
The latest versions of the Costimator system are written in C++, operate in Windows, and are Open Database Compliant.
Northeast engineers, after their training for the software, input machine times and labor standards into the system's database. Fine-tuning the database is an ongoing process to reflect new tooling and first-time jobs.
"We modify our database as we go along, adding new machine times and standards as well as adjusting data as needed," Charlie Masterson, Northeast Manufacturing's chief cost estimator, said.
An Added Benefit
Lobdell said the system provides fast and accurate job quotes for manufacturing parts on his company's CNC machining centers. It also provides benefits beyond cost estimating: Costimator's process plans, routings, and other reports support customer service and sales. The manufacturing times created on Costimator feed into Northeast's Made2Manage management software, improving shop floor scheduling.
"We want to win jobs, but we need to be sure our quotes are on the money," Lobdell said. "If we win a large job that costs more than we estimated, we could lose money. Costimator's accuracy lets us bid with confidence."
Prior to the purchase of the system, about 40 percent of the company's estimates – produced by manual methods – were less profitable than estimated. Costimator estimates for Northeast are within about five percent of manufacturing cost.
The computerized system helps estimators improve profitability in other ways. They can weed out RFQs with attached target prices that translate into minimal profits.
In instances when customers return after an initial quote by Northeast and ask for a lower "best and final" bid, estimators refer to their detailed cost estimates and have the confidence to decline making another estimate, Lobdell said.
Not More Jobs, More Profitable Ones
Success at Northeast is not winning more jobs, but winning profitable jobs completed on schedule.
Many of Northeast's customers shop for more than low prices: they are looking for a shop they can trust and offer them help, cost-estimator Masterson said.
Design engineers don't always understand all the costs associated with machining, he said, so he uses the estimating system's what-if feature to check for less expensive designs and manufacturing methods. He then recommends the changes to customers. This sets the shop apart from competitors, Masterson said.
An example was a laser equipment part that flew on the space shuttle.
"By doing a what-if, I was able to suggest changes that let us use a 3/4" endmill, instead of a 1/4"," Masterson said. "That increased our cutting efficiency and reduced machine time. We also proposed changes in corner design to reduce setup time and use less-expensive brackets."
The Costimator-suggested alternatives cut the estimated manufacturing cost of $50,000 in half, Masterson said. The company won the bid with the suggested changes. Costimator also helped Northeast win more business in an emerging medical equipment sector, a now vital area of the company's customer base.
These manufacturers regularly put out RFQs on new products and parts.
"They give us a design, then we can tell them what it will cost and show them some configuration changes that will save them money."
MTI Systems www.rsleads.com/705mn-205 or Circle 205 for more information