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the first 3 chapters of my upcoming book (Years ago, I remember consulting to a small printing firm.
As is often the case in job shops (make-to-order manufacturers), estimation was the system constraint.
Obviously, this wasn’t a good thing. It meant that customers wanted to buy printing; that production had the capacity to fulfil their orders; but that estimating was limiting the flow of Throughput (money).
Increasing the flow of estimates would provide two benefits:
- It would release a bunch of work into production (where it could be converted into Throughput)
- It would increase the conversion rate (in a high-volume job shop like this, estimation lead-time is a driver of conversion rate)
The temptation was to add another estimator. But before we did this, we took some time to observe the estimation function in the context of the wider sales process.
Here’s what was happening:
- Customers would provide salespeople with a request for quote (RFQ)
- The RFQ would sit in a queue for days, and then the estimator would spend an disturbing amount of time costing the job (on a time-and-materials basis)
- Salespeople would provide the estimate to clients and then negotiate the price quoted down to market value!
We realised that it simply didn’t make sense to dedicate all that time to the generation of estimates. The firm had production capacity. Within reasonable limits, any work that would generate Throughput was good work!
For that reason, we changed the estimation priorities to:
- Cover raw-material costs
- Win the work
- Generate as much Throughput as possible
Then, to jump-start the process, we got the CEO to make a simple commitment. Each day, before leaving work, the CEO promised to check the estimator’s in-tray. If it contained any RFQ’s that had been received after 3:00pm, the CEO would *guess* the market value of the job and scribble it on the estimate! These guesses would be transcribed and dispatched first thing the next morning. (The CEO agreed that, with his experience, the guesses would be ‘good enough’.)
The result was that estimates were turned-around in hours, instead of days. The conversion rate increased. Production became busy. And the firm developed a reputation for speed (which, in that industry, is a valuable reputation to have).
Obviously, this approach conflicts with estimators’ cost-plus view of the universe. But the reality is that prices are not determined by estimators; they are determined by the market. It’s better in most cases, to design a quick-and-dirty estimation process and then have your salespeople negotiate the final price.
In a job-shop environment, we tend to encourage clients to quote a number of prices, each with different lead times. That way clients can pick their own price (more often than not they’ll elect to pay a premium for a shorter lead-times).
So, how do you calculate the price?
I recently compared notes with Mark Woeppel (a TOC production expert and a subscriber to this list). Mark explained that he has a current job-shop client with the same problem. He has them estimating by taking raw-material costs and multiplying them by 4!
The result, he assures me, are ‘good enough’.
Sounds good to me!
As a business owner of a “small” printing firm I know all too well firsthand how much time it takes to “accurately” work out the exact cost then adjust the markup up or down depending on the client type. Working on quotes into the small hours of the morning becomes tedious after several years. Why not group the 80% of your most common smaller work into a price list, tidy it up with some nice images and email it to your prospects and clients. Then you can allocate your time to build better relationships with your clients and staff and quote only the “BIG” jobs on time!
Mike. The irony is that the pursuit of accuracy tends to result in anything but — in addition to quotation lead times that tend towards infinity!
It’s like measuring the coastline with a ruler. The smaller the guage the greater the result(and the more time spent measuring).
Estmates need to be fit-for-purpose. The real arbiter of accuracy is the market!
I don’t disagree that estimates should be accurate. But the $64 question is, accurate according to what standard?
Can’t say I agree with your hypothesis, although I do agree you need to turn around RFQs as quickly as possible.
It is essential that a company estimates the cost of any job accurately. Every time you quote you put your company’s profit, and therefore continuity, on the line. “Guesstimates” only lead to headaches.
You say it is important to keep the capacity flowing through the establishment. This is true providing your throughput is making money. Why work your socks off only to achieve what amounts to providing him with his order plus a cash bonus??
Here at Gridmaster, ( http://www.gridmaster.co.uk ), we have what we believe to have the ideal solution to estimating problems, whether they be based on a databank or on actual cycle time calculation.
Have a look at our solutions…. Mike Latham, Gridmaster