Jan 04 2009

QUICK COST CALCULATOR

Published by at 5:20 pm under Uncategorized

Many times a molder gets a RFQ electronically or on paper. Before anything should happen the molder must make an initial decision:

What does this guy want?  Is he on a Fishing Expedition just to see if he can wholesale it off and still make a profit?  Or, is he trying to establish a budget?  Or, is he generating numbers to come back and beat me (or somebody else) over the head with the ‘I can get it cheaper from company XYZ’ ploy?  OR is this guy for real and does he actually want to make a part?It’s a complex set of questions that customers rarely answer honestly.  However putting in a few hours every time a RFQ comes across you desk; should have a high percentage of business attached to it.  If not, you feel used and abused.

.
The QUICK COST CALCULATOR is one such sheet. (For those of you who want the quick answer scroll down and click on the link). Keep in mind there are probably hundreds of calculators like this in varying states of complexity and/or simplicity.

Here’s how this one works – as a molder you fill in (shamelessly) your direct labor, machine costs, material lost through purging and setup/teardown costs.  These are not up for negotiation.  Unless you are a One-Material-One-Color molder, material changeovers also take time and cost money. The Single Minute Die Exchange mentality works only if you are using Unit Cavities or some kind of quick change systems with identical materials from run to run. Otherwise, it never works in practice.

If your customer doesn’t like you $50/hr machine rate, let him play with lower machine costs, then go out and find somebody who’ll sell time at the number he likes.  It’s a wonderfully humbling experience.  If the does find somebody cheaper, be sure to tell him “cheap usually ends up being expensive in the long run” and wait until his rejects begin piling up. You might give guidance on how to calculate cycle times, part and runner weights.  Now let the designer play his own games.

The fault in the China Price (that most people forget), is although the direct labor cost might be $.50/hour with a lot of hand labor and they made a few single cavity molds instead of a multi-cavity one; you still have to get the parts to your loading dock.  And it doesn’t matter if the cost of freight is “not my budget”.  Somebody is still writing a check for the freight.  While Freight Containers are quite cheap (with the added benefit of also being quite slow), at some time it ends up on a truck before it gets to your dock.

Instruct your client that before he only falls in love with the part price, he might also look at the ‘real’ cost of the part that includes freight.  IF he wants to get a little more sophisticated he might also consider the amount of money his expeditors paid for overnight delivery because his supply chain just got constipated by several skids (freight containers?) of rejected parts. (On the spreadsheet it is under the tab of DELIVERED COST).  If the supply chain has a reject, how big is it, how long is it, and who should be paying for the downtime it causes etc.?  Don’t think for a minute your offshore supplier will pay for the air freight or even absorb the loss for bad parts.  He’ll simply make more parts and ship them again (since the offshore price was so low, what ever makes you think the replacement parts will be any different from the bad ones?).

My personal predisposition for sourcing parts is to find the best vendor locally:  Short supply chains respond faster when rejects show up, inbound freight costs are lower, and with a little thought and some automation; the prices become competitive.

The real problem with this calculator is Mold Cost.  If we take the cost of the mold and divide it by the net cost of the lifetime volume of parts (meaning all the parts put into the marketplace plus all the rejected parts) you actually get a true part cost.   The tool buyer will usually take the cheap tool, throw it over the wall to the production buyer and hope for the best in parts.  He does this because he doesn’t know any better, and by the time he realizes it’s a bad mistake, it is too late.

Let your customers figure out prices – it will give them their own set of ulcers and allow you to do what you do best – make quality parts at an affordable price.  They may even begin to appreciate the highly volatile behavior of the resin market.

Here’s the link for the downloadable QUICK COST ESTIMATOR or you can point your browser to
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* * * * * *
This article is virtual.  You can read it and use the spreadsheet for yourself.  Or you can give it to your customers and let them play with the numbers – you’d be surprised how they stop whining about price.  OR you can use it to scare the rats in the warehouse and wonder why your competition is getting along with less people and more profits.

Your choice

GIVING CREDIT WHERE IT IS DUE
The basic calculator was written by Scott Beckham of Beckham Design (scottb@beckhamdesign.com).  This will be part of the book of Tribal Knowledge which will be composed of the newsletter’s reader’s contributions.  If you wish to contribute go to this link for the proposed outline of the book.  http://wjtassociates.com/site/?page_id=17

What does this guy want?  Is he on a Fishing Expedition just to see if he can wholesale it off and still make a profit?  Or, is he trying to establish a budget?  Or, is he generating numbers to come back and beat me (or somebody else) over the head with the ‘I can get it cheaper from company XYZ’ ploy?  OR is this guy for real and does he actually want to make a part?

Question: Why should you even respond to Fishing Expedition, Budgetary, or Beat-The-Other-Guy-Up quotes?
Answer #1: You never know when the RFQ is real.

ANSWER #2 – Customers usually ask for quotes because they don’t know how to do it themselves.  The simple solution is to give them a rough spreadsheet and let them fill in their own blanks.

QUICK COST CALCULATOR

Many times a molder gets a RFQ – electronically or on paper.  Before anything should happen the molder must make an initial decision:

What does this guy want?  Is he on a Fishing Expedition just to see if he can wholesale it off and still make a profit?  Or, is he trying to establish a budget?  Or, is he generating numbers to come back and beat me (or somebody else) over the head with the ‘I can get it cheaper from company XYZ’ ploy?  OR is this guy for real and does he actually want to make a part?

It’s a complex set of questions that customers rarely answer honestly.  However putting in a few hours every time a RFQ comes across you desk; should have a high percentage of business attached to it.  If not, you feel used and abused.

.
The QUICK COST CALCULATOR is one such sheet. (For those of you who want the quick answer scroll down and click on the link). Keep in mind there are probably hundreds of calculators like this in varying states of complexity and/or simplicity.

Here’s how this one works – as a molder you fill in (shamelessly) your direct labor, machine costs, material lost through purging and setup/teardown costs.  These are not up for negotiation.  Unless you are a One-Material-One-Color molder, material changeovers also take time and cost money. The Single Minute Die Exchange mentality works only if you are using Unit Cavities or some kind of quick change systems with identical materials from run to run. Otherwise, it never works in practice.

If your customer doesn’t like you $50/hr machine rate, let him play with lower machine costs, then go out and find somebody who’ll sell time at the number he likes.  It’s a wonderfully humbling experience.  If the does find somebody cheaper, be sure to tell him “cheap usually ends up being expensive in the long run” and wait until his rejects begin piling up. You might give guidance on how to calculate cycle times, part and runner weights.  Now let the designer play his own games.

The fault in the China Price (that most people forget), is although the direct labor cost might be $.50/hour with a lot of hand labor and they made a few single cavity molds instead of a multi-cavity one; you still have to get the parts to your loading dock.  And it doesn’t matter if the cost of freight is “not my budget”.  Somebody is still writing a check for the freight.  While Freight Containers are quite cheap (with the added benefit of also being quite slow), at some time it ends up on a truck before it gets to your dock.

Instruct your client that before he only falls in love with the part price, he might also look at the ‘real’ cost of the part that includes freight.  IF he wants to get a little more sophisticated he might also consider the amount of money his expeditors paid for overnight delivery because his supply chain just got constipated by several skids (freight containers?) of rejected parts. (On the spreadsheet it is under the tab of DELIVERED COST).  If the supply chain has a reject, how big is it, how long is it, and who should be paying for the downtime it causes etc.?  Don’t think for a minute your offshore supplier will pay for the air freight or even absorb the loss for bad parts.  He’ll simply make more parts and ship them again (since the offshore price was so low, what ever makes you think the replacement parts will be any different from the bad ones?).

My personal predisposition for sourcing parts is to find the best vendor locally:  Short supply chains respond faster when rejects show up, inbound freight costs are lower, and with a little thought and some automation; the prices become competitive.

The real problem with this calculator is Mold Cost.  If we take the cost of the mold and divide it by the net cost of the lifetime volume of parts (meaning all the parts put into the marketplace plus all the rejected parts) you actually get a true part cost.   The tool buyer will usually take the cheap tool, throw it over the wall to the production buyer and hope for the best in parts.  He does this because he doesn’t know any better, and by the time he realizes it’s a bad mistake, it is too late.

Let your customers figure out prices – it will give them their own set of ulcers and allow you to do what you do best – make quality parts at an affordable price.  They may even begin to appreciate the highly volatile behavior of the resin market.

Here’s the link for the downloadable QUICK COST ESTIMATOR or you can point your browser to http://wjtassociates.com/site/?page_id=17

* * * * * *
This article is virtual.  You can read it and use the spreadsheet for yourself.  Or you can give it to your customers and let them play with the numbers – you’d be surprised how they stop whining about price.  OR you can use it to scare the rats in the warehouse and wonder why your competition is getting along with less people and more profits.

Your choice

GIVING CREDIT WHERE IT IS DUE
The basic calculator was written by Scott Beckham of Beckham Design (scottb@beckhamdesign.com).  This will be part of the book of Tribal Knowledge which will be composed of the newsletter’s reader’s contributions.  If you wish to contribute go to this link for the proposed outline of the book.  http://wjtassociates.com/site/?page_id=17

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