The Price Disconnect

Traditionally, cost estimating is the basis for pricing. I was very surprised the first time a mentor pointed out that the two are often quite disconnected. There were jobs, admittedly not many, where for a variety of reasons the price could be much higher than a typical industrial job. The factors he cited were speed of delivery, lack of vendor options, the need to inconvenience other customers, and unique processing capabilities.

Far more common are parts where the reverse situation exists, when your cost far exceeds the selling price. This is an indication that you just don’t have the correct processing equipment and a polite no quote is the best response.

In a previous blog I called for better communication between buyers and manufacturers. Target prices are an efficient way for potential suppliers to determine if the project fits their operation. A prompt decline allows the buyer to find other bidders; a manufacturer can even get a positive result from a no quote by sending the buyer to a more suitable source.

Your costs, ultimately, determine if you can stay in a particular market sector. Some products have become commodities with generic designs produced in low labor cost countries all over the world. A low volume shop has no business trying to bid on those orders.

Among the first things I did after being assigned quoting duty was to meet with management to develop a list of expectations for profitability, order size, account size, and lead time. We found it much less stressful to create a point system to evaluate incoming quote requests for desirability for our shop. I’ll detail some of these factors in upcoming blogs.

The point system helped us assign resources to jobs we wanted and to politely decline the jobs that we didn’t. It greatly reduced the stress of putting many hours into estimating a project only to have a boss decide to “no quote” it at the deadline.

About Charles D. Schultz 678 Articles
Charles D. Schultz is President of Beyta Gear Service and one of Gear Technology's technical editors.