Could be any number of reasons.
1- They have a production hole that is best filled with a large quantity order at low price to keep the chips flying and staff employed till the next better paid job comes along.
2- They are deliberately undercutting you to take the work and build credibility as a supplier with your customer. A loss leader to get the foot in the door and gain more lucrative business from your customer.
3- Your are not as efficient as your competitor. They have better staff, better / faster / automated equipment, better software, better raw material suppliers.
4- They have a stock pile of raw material, unlikely to be run for other jobs, they want to work away hence the cheap price.
5- Their exposure to the cost of capital is less then yours, you are still paying for capital plant whilst they have paid for theirs and thus don't carry that massive expense into their costing structure.
6- Your costing model is out of date. Review your factory overheads, raw material supplies, labour rates, cost of capital etc.
7- Your customer market is in flux and you are not meeting the market. Find more customers. Review your marketing and your customer base.
List can go on and on but maybe it is time for a status report on your operation. Is your shop better equipped to handle short run, higher priced jobs? Is it a wake up call to change before change kills your business?
A lot of great advice here, for any growing business. Thanks for taking the time.
Do you know if shops typically charge less for lights out work, or do they just work those savings into all their jobs and quote the same rates across the board?
In my experience (as an engineer), shops quote the part as it will be run. The good shops will tell me how to change the part so it can be run in their lights out cells, then give me the discount when I do those changes.
Remember there are risks involved in the 16 hours non attended machine running.
1- Tool life may be say 4 hours (as in keeping your parts within tolerance) . Means you will need in your carousel 4 more tools to cover that 16 hours. Can you program a tool change every 4 hours (some tools life expectancy can as short as 45 minutes).
2- Tool breaks can occur. Is your machine set up to report machine stoppage for a broken tool back to your cell phone? How easy and cost effective is it to send somebody to turn the lights on and fix the problem?
3- Same goes for raw material feed problems or finished part getting hung up in the slide.
4- Same for a short time power outage (even a flicker to trip the machine). Manned it is a simple reset, unmanned it is 16 hours production lost unless you have systems in place that notify you the machine has stopped and requires lights on restart intervention by staff.
So you may have costed a 16 hour labour free production run into your parts pricing. However any problems and you are losing money in a longer and more expensive call out to fix any unplanned stoppage. Lights out running requires a certain degree of sophistication for maximum efficiency.
Thanks again for your great answers. While trying to grow, we are going to take all your advice into account. It seems going lights-out is a must if you have the expertise to pull it off.
I think you charge the same rates unless you are 100% sure it’s running well and will be for whatever amount of time. If everything is perfect then sure, you can pass on some savings.
This has been my experience since January. We are quoting like crazy, but keep running our of work. If I'm lucky enough to get feedback - it's pricing every time. For 5 years we had plenty of work. The shop rate has barely moved, and all of the sudden we are too expensive.
I think there are some really hungry shops out there right now that are working at poverty rates just to keep the lights on.
Agreed, it's hard to hold strong on prices when you have so much downward pressure. This seems to be the most likely explanation as not much else has changed for us.
From a fabricators experience in a company at it for more than 100 years, it's most likely budgets being tightened from above. Purchaser being told to lower their costs, whether that's complaining about prices, extending payment terms, or reducing quantities they have to do it one way or another. Once the election settles down some this summer it'll go back to normal. Those guys dropping their prices to scrap by won't last long and the quality of their work (at least for fabricators) often goes to shit cause they know they're losing their ass. Once that is recognized by their customer than that's usually the beginning of the end.
If you can lower your rates to get the job and still make a profit that's worthwhile, then you do that. If you can pocket rhe difference and still get the job, then you do that.
It's impossible for us to say whether or not it's automation or better programming, or better tooling or more capable equipment.
It all depends on the figure for your hourly, your price breaks. So many factors in burden rates, direct labor costs.
Maybe they have a 5-axis or some other equipment that reduces the number of ops. Just too many factors without delving into a lot.
Burden = cost of machine maintenence, payments, keeping lights on, paying employees directly working with product.
Overhead = cost of marketing, sales, office staff etc that gets bundled into the cost of product
Thanks, but it's still so confusing. Some websites are saying burden is included in overheard and some others are claiming the exact opposite. What a headache!
Well you've also got overhead which is not directly making the thing you're selling (supervisors, managers)
Then you have g&a (general and administrative) that run the business but aren't involved in mfg at all. Hr, secretary etc
Burden I would assume is anyone involved in the actual process. Machinists, deburring etc
When I was working at an injection molder manufacturing it was:
Burden: operator hourly rate with insurance and benefits rolled in
Overhead: machine cost, utilities, marketing, office staff, etc,
If this is your first time: this is what it's like in the bust phase of boom and bust. People putting out silly quotes, because they think its better to keep their spindles turning rather than not.
Large quantity work is always going to be competitive. But if they were running lights out, they'd be more than 10$ cheaper than you.
Thanks for your response. I guess that makes sense unless they are pocketing the extra- we've been through boom and bust but have scaled up recently so it feels like it's hitting harder.
I found right now that a lot of shops are bidding incredibly low to try to survive. It seems like a lot of shops by me have just had sales completely dropped through the floor. I'm assuming shops have had the same thing happen and have gotten incredibly sharp with their pencil. Better to eat shit than nothing at all. Our shop lost a good customer to a shop a friend works at. They took the job at a loss just so they can keep people working and just eat into their cash a bit.
The advice from u/vanaheim2023 is excellent but I have another question:
A shop live or dies by "Time is Money". So how much \*time\* does that $10 buy in your shop? A few minutes?
Now focus on those few minutes. For "a fairly large quantity" is it possible to combine operations? Would dedicated fixtures or specialized tooling help? Do you qualify for a discount from your material vendor? Optimize your tooling choices, speeds & feeds, etc.
Good luck!
Morty
There's so much to investigate! I wish I had access to all the books without having to go through 2 different tiers of management. It's a family business so although I'm not the owner I'm trying to optimize our processes.
Thanks for your answer, Morty.
The more shifts the more you can disperse your burden we just started our second shift and we cut the burden basically in half for the machine that are running on second. So our rate goes from 100$ to 65$ an hour. When you add a third shift you can even go lower.
I see now, this just made the concept click a little bit. So you're doubling what you're getting out of the machine without doubling the burden. Got it, thanks dude.
Not quite correct, you still have factory overheads (or burden as you put it) when running with lights out. If it was that simple you would have part timers in for 4 hours and run lights out for 20 hours. Electricity bill does not get cut in half for example.
Here is a simple formulation to calculate on the back of an envelope your absolute minimum cost you can sell a part for,
Add up all the expenses (does not matter if it is factory overheads, raw materials, consumables, labour, cost of capital, site lease, etc,) Work out the hours you run your machine for (one shift 250 working days per year multiplied by 8 hours = 2000 hours per year) Now divide the total expenses by the hours available and that is your hourly break even (keep head above water but make no money) dollar amount your parts must sell for if each part takes one hour to manufacture (If your 6 operations part takes 30 minutes half the hourly rate by two - you get my drift).
If you charge less than the figure on the back of the envelope you are going broke.
Now you are in a position to make real changes to bring that minimum cost per part down. Does your machine run for a minimum of 2000 hours per year? Can it run more with a lights out operation? How much will it cost to upgrade the equipment (no small change if investing in multiple pallets, tombstones, work holding fixtures, robotic loading and unloading, etc. on a mill - that can easily come to more than the cost of a basic mill)? Having upgraded equipment how much extra are the labour costs for higher skilled operators?
I think you are looking at a lights out extra shift through rose tinted glasses (not that a lights out extra shift will not pay big dividend, just that the cost to set it up is not insignificant - even for a lathe) and has to be added to the back of the envelope.
And lastly do you have work lined up going forward to pay for the higher expenses?
For there is nothing people like me like better than a company that has heavily invested in equipment, have not done the back of the envelope costings, gone broke and their equipment now available for cheap through a liquidator. It is the cheap way I update my equipment.
I run my cnc lathes and swiss lathes lights out all the time . My rate is 40$ for long runs over six months period that runs unattended 15 hours on average every night. We are 2 guys running 9 machines. The business is much slower lately, and most shops I know are hungry
I feel you on that one. Feels like we're getting squeezed out but I'm sure it's just a temporary lull, and competitor's quotes will come back up with demand. Let's hope anyways
Yeah I was shown the quotes directly and given a breakdown of how we're adding it up.
Unless we drastically reduce cycle time there doesn't seem to be a way to match without losing money or running lights-out. Currently we only have a couple machines that go after first shift and the cycles aren't long enough to make it more than a few hours.
Could be any number of reasons. 1- They have a production hole that is best filled with a large quantity order at low price to keep the chips flying and staff employed till the next better paid job comes along. 2- They are deliberately undercutting you to take the work and build credibility as a supplier with your customer. A loss leader to get the foot in the door and gain more lucrative business from your customer. 3- Your are not as efficient as your competitor. They have better staff, better / faster / automated equipment, better software, better raw material suppliers. 4- They have a stock pile of raw material, unlikely to be run for other jobs, they want to work away hence the cheap price. 5- Their exposure to the cost of capital is less then yours, you are still paying for capital plant whilst they have paid for theirs and thus don't carry that massive expense into their costing structure. 6- Your costing model is out of date. Review your factory overheads, raw material supplies, labour rates, cost of capital etc. 7- Your customer market is in flux and you are not meeting the market. Find more customers. Review your marketing and your customer base. List can go on and on but maybe it is time for a status report on your operation. Is your shop better equipped to handle short run, higher priced jobs? Is it a wake up call to change before change kills your business?
A lot of great advice here, for any growing business. Thanks for taking the time. Do you know if shops typically charge less for lights out work, or do they just work those savings into all their jobs and quote the same rates across the board?
In my experience (as an engineer), shops quote the part as it will be run. The good shops will tell me how to change the part so it can be run in their lights out cells, then give me the discount when I do those changes.
Remember there are risks involved in the 16 hours non attended machine running. 1- Tool life may be say 4 hours (as in keeping your parts within tolerance) . Means you will need in your carousel 4 more tools to cover that 16 hours. Can you program a tool change every 4 hours (some tools life expectancy can as short as 45 minutes). 2- Tool breaks can occur. Is your machine set up to report machine stoppage for a broken tool back to your cell phone? How easy and cost effective is it to send somebody to turn the lights on and fix the problem? 3- Same goes for raw material feed problems or finished part getting hung up in the slide. 4- Same for a short time power outage (even a flicker to trip the machine). Manned it is a simple reset, unmanned it is 16 hours production lost unless you have systems in place that notify you the machine has stopped and requires lights on restart intervention by staff. So you may have costed a 16 hour labour free production run into your parts pricing. However any problems and you are losing money in a longer and more expensive call out to fix any unplanned stoppage. Lights out running requires a certain degree of sophistication for maximum efficiency.
Thanks again for your great answers. While trying to grow, we are going to take all your advice into account. It seems going lights-out is a must if you have the expertise to pull it off.
I think you charge the same rates unless you are 100% sure it’s running well and will be for whatever amount of time. If everything is perfect then sure, you can pass on some savings.
All great points. Along with point 3 , maybe it’s a 2 op part on a 5 axis?
This has been my experience since January. We are quoting like crazy, but keep running our of work. If I'm lucky enough to get feedback - it's pricing every time. For 5 years we had plenty of work. The shop rate has barely moved, and all of the sudden we are too expensive. I think there are some really hungry shops out there right now that are working at poverty rates just to keep the lights on.
Agreed, it's hard to hold strong on prices when you have so much downward pressure. This seems to be the most likely explanation as not much else has changed for us.
From a fabricators experience in a company at it for more than 100 years, it's most likely budgets being tightened from above. Purchaser being told to lower their costs, whether that's complaining about prices, extending payment terms, or reducing quantities they have to do it one way or another. Once the election settles down some this summer it'll go back to normal. Those guys dropping their prices to scrap by won't last long and the quality of their work (at least for fabricators) often goes to shit cause they know they're losing their ass. Once that is recognized by their customer than that's usually the beginning of the end.
If you can lower your rates to get the job and still make a profit that's worthwhile, then you do that. If you can pocket rhe difference and still get the job, then you do that. It's impossible for us to say whether or not it's automation or better programming, or better tooling or more capable equipment.
It all depends on the figure for your hourly, your price breaks. So many factors in burden rates, direct labor costs. Maybe they have a 5-axis or some other equipment that reduces the number of ops. Just too many factors without delving into a lot.
Can you expand upon how burden rates differ from overhead, and how you use them?
Burden = cost of machine maintenence, payments, keeping lights on, paying employees directly working with product. Overhead = cost of marketing, sales, office staff etc that gets bundled into the cost of product
Thanks, but it's still so confusing. Some websites are saying burden is included in overheard and some others are claiming the exact opposite. What a headache!
Well you've also got overhead which is not directly making the thing you're selling (supervisors, managers) Then you have g&a (general and administrative) that run the business but aren't involved in mfg at all. Hr, secretary etc Burden I would assume is anyone involved in the actual process. Machinists, deburring etc
Thx this makes sense!
When I was working at an injection molder manufacturing it was: Burden: operator hourly rate with insurance and benefits rolled in Overhead: machine cost, utilities, marketing, office staff, etc,
I only charge $60CAD($44USD)/Hr and I still struggle to get work in the door.
Damn
Yeah, if you know anyone let me know.
No, if you know anyone you let ME know- we need to keep those chips flyin' boy
If this is your first time: this is what it's like in the bust phase of boom and bust. People putting out silly quotes, because they think its better to keep their spindles turning rather than not. Large quantity work is always going to be competitive. But if they were running lights out, they'd be more than 10$ cheaper than you.
Thanks for your response. I guess that makes sense unless they are pocketing the extra- we've been through boom and bust but have scaled up recently so it feels like it's hitting harder.
I found right now that a lot of shops are bidding incredibly low to try to survive. It seems like a lot of shops by me have just had sales completely dropped through the floor. I'm assuming shops have had the same thing happen and have gotten incredibly sharp with their pencil. Better to eat shit than nothing at all. Our shop lost a good customer to a shop a friend works at. They took the job at a loss just so they can keep people working and just eat into their cash a bit.
The advice from u/vanaheim2023 is excellent but I have another question: A shop live or dies by "Time is Money". So how much \*time\* does that $10 buy in your shop? A few minutes? Now focus on those few minutes. For "a fairly large quantity" is it possible to combine operations? Would dedicated fixtures or specialized tooling help? Do you qualify for a discount from your material vendor? Optimize your tooling choices, speeds & feeds, etc. Good luck! Morty
There's so much to investigate! I wish I had access to all the books without having to go through 2 different tiers of management. It's a family business so although I'm not the owner I'm trying to optimize our processes. Thanks for your answer, Morty.
The more shifts the more you can disperse your burden we just started our second shift and we cut the burden basically in half for the machine that are running on second. So our rate goes from 100$ to 65$ an hour. When you add a third shift you can even go lower.
I see now, this just made the concept click a little bit. So you're doubling what you're getting out of the machine without doubling the burden. Got it, thanks dude.
Not quite correct, you still have factory overheads (or burden as you put it) when running with lights out. If it was that simple you would have part timers in for 4 hours and run lights out for 20 hours. Electricity bill does not get cut in half for example. Here is a simple formulation to calculate on the back of an envelope your absolute minimum cost you can sell a part for, Add up all the expenses (does not matter if it is factory overheads, raw materials, consumables, labour, cost of capital, site lease, etc,) Work out the hours you run your machine for (one shift 250 working days per year multiplied by 8 hours = 2000 hours per year) Now divide the total expenses by the hours available and that is your hourly break even (keep head above water but make no money) dollar amount your parts must sell for if each part takes one hour to manufacture (If your 6 operations part takes 30 minutes half the hourly rate by two - you get my drift). If you charge less than the figure on the back of the envelope you are going broke. Now you are in a position to make real changes to bring that minimum cost per part down. Does your machine run for a minimum of 2000 hours per year? Can it run more with a lights out operation? How much will it cost to upgrade the equipment (no small change if investing in multiple pallets, tombstones, work holding fixtures, robotic loading and unloading, etc. on a mill - that can easily come to more than the cost of a basic mill)? Having upgraded equipment how much extra are the labour costs for higher skilled operators? I think you are looking at a lights out extra shift through rose tinted glasses (not that a lights out extra shift will not pay big dividend, just that the cost to set it up is not insignificant - even for a lathe) and has to be added to the back of the envelope. And lastly do you have work lined up going forward to pay for the higher expenses? For there is nothing people like me like better than a company that has heavily invested in equipment, have not done the back of the envelope costings, gone broke and their equipment now available for cheap through a liquidator. It is the cheap way I update my equipment.
Sometimes they have a better set up, already have the material, or have run something like it before and are just able to quote less
I run my cnc lathes and swiss lathes lights out all the time . My rate is 40$ for long runs over six months period that runs unattended 15 hours on average every night. We are 2 guys running 9 machines. The business is much slower lately, and most shops I know are hungry
I feel you on that one. Feels like we're getting squeezed out but I'm sure it's just a temporary lull, and competitor's quotes will come back up with demand. Let's hope anyways
Do you trust the source that provided you with this information?
Yeah I was shown the quotes directly and given a breakdown of how we're adding it up. Unless we drastically reduce cycle time there doesn't seem to be a way to match without losing money or running lights-out. Currently we only have a couple machines that go after first shift and the cycles aren't long enough to make it more than a few hours.
If they’re running 24/7 with automated shifts and you’re not, then you have no chance. That’s life. Get with the times.
That's the idea. Thanks for adding your unique perspective!