By Marshall Taylor
In this article we are going to pull back the curtain on what goes into a machining quote. As most people in the manufacturing industry are aware, prices can vary widely between suppliers. It gives the impression that pricing is just a wild guess that someone came up with by shaking the magic eight ball.
While some companies may be nervous to share this information, I think it is important for the customer to understand what they are paying for. There are many factors that must be considered. Likewise, there are a gamut of methods that people use for quoting. These methods range from “shoot from the hip” or “gut feel” to sophisticated software that is integrated into an ERP system. Both ends of the spectrum have their pros and cons. The best solution is to trust but verify, meaning use technology to automate as much of the quoting process as possible but use industry experience to validate the numbers.
Let’s get into the weeds of what a machining quote is comprised of. To start off, a supplier must determine their baseline for a shop rate. At a minimum, this must cover the fixed operating expenses of the business plus some kind of profit margin. This includes the lease of a building, machine payments, insurance, business permits, certifications, payroll, utilities, equipment, and supplies. The expenses can then be divided by the total number of hours that a shop is able to invoice to determine the break-even labor rate. This rate can be applied equally across all machines, but it is common for different machines to have different rates. A multi-axis machine tool that performs complex machining operations may be billed out at a higher rate than a simple machine that costs little to operate. There is a bit of a dichotomy here. Shops that invest in state-of-the-art equipment, infrastructure, and worldclass employees can have enormous overhead compared to one’s that have legacy equipment, but those costs can be offset by higher productivity and less down time due to maintenance.
Cost of goods (COGs) is then added into the quote. Obviously, the price of material comes into play here. There can be enormous price differences between material suppliers. This is especially true with exotic materials or foreign produced metals that are subject to tariffs. I have seen quotes for material that were only valid for 24 hours because of this type of volatility. There is a balance between getting multiple material quotes. On one hand, we want to give our customers the most competitive pricing but at the same time we want to deliver the quote as quick as possible. On small quantities it is often more advantageous to get pricing from a single well-established material supplier to respond to an RFQ quickly than to squeeze out a few pennies comparing quotes. With large volume orders, due diligence is important. Saving a few cents per piece could equate to tens of thousands of dollars. Along with material there are all of the other COGs related to producing finished parts such as tooling, assembly hardware, shipping, finishing, and other processes that can’t be done internally.
Next, we get into the actual machining time. At Marvel Manufacturing we break it down into the following categories: programming, setup, inspection, and run time. The first three are a fixed amount of time required that are amortized over the whole job while the run time is per part. This is why larger volumes have a lower cost per part. Essentially it takes the same amount of time to program and set up one part as it would for 10,000 pieces. On low volumes the fixed times are the driving factor while the run time is the primary driver on high volumes. Determining machining time is equal parts experience and best guess. Simple parts are easy to give an accurate estimate, but complex can be much harder to conclude and there needs to be additional time added for unforeseen circumstances. On top of that we can offer a lower hourly rate for larger production quantities. This is due to being able to have a much higher efficiency rate because there is less down time between jobs along with the ability to utilize less skilled labor and automation at a reduced cost. Prototype parts usually require an experienced person and a one-to-one ratio between the operator and the machine. In production manufacturing, less experienced employees can operate multiple machines effectively.
The last piece of the puzzle is where we perform the gut check. After going through all the details we take a step back to look at the overall price and the amount of time we estimated for the entire job. This is an important step to catch any incorrect inputs and make sure the quote isn’t grossly out of line. Part of this process is to review a risk checklist looking at things such as tight tolerances, effect of failure, complexity, and the value of each piece.
To close the loop, we welcome feedback from our customers, especially if we are outbid. Ethically, a customer should not share competitors’ pricing. However, we would like to know if there is a significant difference in our quotes or other factors that caused them to go with someone else. Our goal is not to win every bid. Rather, we seek to provide the best value, and we do that by continually improving our processes and adapting to the needs of the customer.
Contact us for a quote for your machining project today.
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