Job estimating shouldn't be a guessing game
April 16, 2012
Metal fabricating companies that rely on a seasoned worker who knows all of the production processes like the back of his hand and transfers that experience into the job estimating function are common. Fabricating operations that run that department smoothly and efficiently with no fears of inaccurate or inconsistent quotes while still relying on that one person's experience are pretty uncommon. The fact is that a majority of shops are taking huge risks by estimating jobs based on tribal knowledge and paper and pencil. Software can help change that.
Gather around the campfire because it’s time to share scary tales of job estimating in the metal fabricating industry:
A metal fabricator has a history of damaging a regularly ordered stainless steel part it makes for a customer. The fabricator’s lead estimator realizes this constant need for rework and begins to work additional cost into the part to cover the impending damage. So the job estimate includes the cost associated with the company’s overhead, an additional charge to cover the desired profit margin, another charge to cover the time-intensive fabricating operation of making small holes in the stainless steel part, and a 10 to 15 percent markup to cover production costs for additional parts that ultimately will replace the soon-to-be-damaged parts. For the time being, the markup isn’t questioned and seems to work for the fabricator, even if rework rates fluctuate with each delivery.
A large customer shows up and wants quotes for more than a hundred different parts. To deliver the quotes, however, the metal fabricator’s estimator has to go through stacks of blueprints. In the name of expediency, the estimator unfolds batches of blueprints in the cafeteria and engages in drive-by estimating, assigning a cost to a metal part as he walks by and glances at its drawing. In the end, the attempt to deliver competitive quotes in a timely manner is for naught because the large customer elects to buy only a couple of the parts out of the more than a hundred parts that were quoted.
Multiple people in the job estimating department are asked to quote the same job, either because it’s a competitive internal exercise or a miscommunication. The estimates are delivered at just about the same time, but they don’t match. Luckily, the estimates are off only a few percentage points. But what would happen if it were more?
Scared yet? Maybe you don’t have anything to worry about. Maybe you know your production costs, have flexibility in adjusting rates, and can run reports to get a clear picture of just how many jobs are being won and lost at any minute of the day. Maybe you are accomplishing this with spreadsheets, a homegrown software package, or a vendor-developed software tool that maintains accurate and consistent quotes. Maybe you are in the minority—a fabricator with complete confidence in your company’s estimating activities.
Truthfully, many shops still rely on the knowledge of one or two key personnel—and paper and pencil in some instances—to deliver the quotes. That can work, but in the day when real-time visibility into production is possible, is that the preferred mode of operation for a shop that may have the narrowest of margins? Isn’t it better to know beforehand that a job has the potential to lose money rather than in a postshipping meeting?
Jay Snow, marketing and business development manager for estimating software developer MTI Systems Inc., called spreadsheets an excellent “next step” tool for estimators who have left pencil and paper behind. However, he warned that it does take a great commitment to keep them organized. For example, if someone needs to update a formula on a spreadsheet, several other spreadsheets may need to be updated as well. So the estimator has to find the correct spreadsheets in a mass of other data files and hope all of the corresponding files have been updated.
Security is another issue, he warned.
“Typically, spreadsheet files aren’t protected, which opens the door for unauthorized changes, which leads to other inconsistencies,” Snow said. “This can be frustrating when so much time may have already been invested creating and analyzing their personal spreadsheet system.”
Database-structured estimating software systems can provide the security and organizational assistance that can make life easier for a fabricator, but not everyone needs it.
Adria Iles, managing director, Lantek Sheet Metal Solutions, said she recalled a customer running a more than $10 million business that relied on spreadsheets but without the aid of a big ERP system. The company had a team of five estimators, which it might have been able to downsize with ERP software, but the process works—and will continue to work—well for the company.
The reason? Iles said the company really knows its costs. That sounds simple enough, but plenty of fabricators really don’t know if they are losing their shirts on a job or making a killing. For those old-schoolers, plenty of the estimating business is still based on gut instincts.
Iles said that fabricators need to commit to nailing down the costs—whether that means doing the legwork themselves or hiring a consultant to guide them through the investigation process. It begins with determining finite capacity of the shop, establishing rates for all of the fabricating activities, and highlighting all of the costs that need to be covered in any quote.
“A lot of times people want [ERP software and quoting modules] to have built-in rates, and I would say that we don’t put those rates in. We help them establish them,” she said.
Fabricators may feel as if they don’t have the means to engage in that kind of thorough investigation, whether because of labor constraints or simply a choice to focus on other matters. For them, some software makes labor rates available as part of the estimating function.
Tom Charkiewicz, president, MTI Systems Inc., said his company’s software has a job rate calculator, based on Bureau of Labor Statistics information, which provides the shop owner with shop rates for his or her shop size. For a more personalized approach, MTI Systems will help to customize rates based on the shop’s annual sales and its perceived cost of doing business.
“Also, the software enables the estimator to estimate the part [based on it being manufactured] anywhere around the world. We have rates for China, Mexico, and elsewhere. It can have 200 countries in the database if you want,” he said.
The fabricator also may want to keep in mind that any estimating software needs to have the ability to fine-tune rates after they have been initially plugged in, according to David Ferguson, president of software developer MIE Solutions Inc.
“Those labor rates are pretty critical nowadays, because everyone is competing against China and other manufacturers. So you want to fine-tune those rates, but you should also be able to fine-tune those rates on the type of process,” he said.
For example, if a standard fabricating job has a six-week lead-time, an estimator would use standard rates. However, if the customer needs the job next week and it has to be expedited, an estimator shouldn’t rely just on standard rates.
“Instead of just upping the value as an expedited percentage, which you could do, you could actually put in different rates for different types of expedited charges. Potentially the machine doesn’t change, but your labor may because the person may be working overtime on the job,” Ferguson said.
Software can keep the rates consistent, but it really shines by helping estimators of all experience levels deliver consistent quotes.
Templates for relatively simple fabrications, such as brackets, are the most obvious example of a software fix that keeps the estimator on track. The estimator plugs in material, size, number of bends, and volume into a template and the software spits out a quote. Fabrications that are similar but different in size, such as electrical enclosures, are another example. The estimator provides the dimensions of the box, and the quote is generated quickly. In both scenarios, the software’s detailed questions ensure that the estimator inputs the specs and rates required to produce an accurate quote that will cover costs and, hopefully, make a profit.
“These [software] features also minimize user error by reducing the amount of data an estimator needs to input to produce an answer,” Snow said. “With the ability to create unlimited models, the functionality takes estimating to a new level. Consistency is enhanced because every cost model is structured with a series of easy-to-input questions returning a specific answer. When the cost models are designed, their configuration takes into consideration various agreed-upon parameters or details needed to complete a single process or a group of processes. When configured with items that include pack, ship, and inspection, for example, the result can be the estimate for manufacturing a complete part.”
Iles stressed that most metal fabricators would benefit from having the estimating function integrated with CAM software to get a truer picture of the manufacturing cost for a part.
“When you end up just counting the number of holes and weight of a part for the estimate, you really don’t know the nested cost or what efficiency [can be achieved and what savings] you can pass on to the customer. So you don’t know the real cost of making that part if you can’t tie it into the geometry of the part itself,” she said.
“That’s where linking the nesting and cutting software to the quoting software is really critical. That’s the biggest return on investment.”
Regardless of whether metal fabricators take steps to improve their quoting activities or choose to maintain the status quo, the software developers continue to introduce new products intended to streamline the quoting process.
Ferguson pointed out that some cost estimating software packages now are linked with CAD software, so that when a DXF file is imported into the quote, the CAD system runs a simulation. It’s the virtual equivalent of actually programming the part to be run on machines on the shop floor.
“Because if you have a big concentric-circle type of cut that’s a couple hundred inches, the only way that you are going to come out with an accurate time is if you are programming that thing. You don’t know how many inches of cutting [will be required] when you look at this thing, and there may be holes or other shapes,” Ferguson said.
Some fabricators may see this type of software integration as the Holy Grail of cost estimating, but they should be wary. The virtual simulation might cover the cutting, punching, and bending, but it’s not going to include those secondary operations such as deburring, welding, and assembly. Again, it all comes down to understanding the entire fabricating process for a metal part.
Software is no guarantee of perfect cost estimating, but it is a marked improvement over pencil and paper. If a shop knows its costs and has a good handle on the most efficient means to fabricate metal parts, its estimators shouldn’t have any problem quoting a small job of 50 simple parts or a large order for 500 complex heavy weldments—whether it uses spreadsheets or an advanced cost estimating software package. They also don’t have to worry about scary quoting stories giving them nightmares.