Sunday, December 1, 2013

Cost Estimating and Estimator's Job - A Description

Job Shop Estimating

Estimator’s job -  dozen tasks. In reality, these tasks may overlap or evolve in different sequences.

1. Process identification
2. History retrieval
3. Compatibility check
4. Work order prep
5. Time study
6. Material planning
7. Fixtures/special handling
8. Costing
9. Pricing
10. Presentation
11. Review
12. Optimization

Job shop estimating: A business process examined in 12 steps

The estimator is expected to know how to dissect a product design into a manufacturing sequence.

An estimator might review the documentation provided with a request for quote (RFQ)  in several passes or stages. Experienced estimators, in reality, are able to perform almost all of these modes of analysis simultaneously.

An early pass through the design is made to identify which features of the product can be manufactured in-house as well as those that must be subcontracted. The next stage might be to plan a sequence of manufacturing, starting with cutting raw material, progressing through each stage of fabrication, and ending with the product ready for shipment and invoicing. With the general work sequence outlined, the estimator will need to obtain bids for the subcontracted fabrication steps. While waiting for those bids to come in, the estimator refines each of the in-house manufacturing steps in terms of material condition on input, material condition on output, labor, machinery, tooling, fixtures, software, quality control, yield, and queue time.

Clearly, a detailed cost estimate can require a significant amount of effort on the part of the estimator. To minimize wasted effort, perhaps the first-pass evaluation is to determine compatibility. If the project is not a good fit with the shop, the shop shouldn’t waste time quoting it.

Subtleties involved in determining compatibility. This is essentially a measure of the degree of difficulty of the project. Part of the strategic vision for the shop is to define what the ideal project entails.
It is a matter of company policy to decide what to do about jobs that deviate from the “ideal” project. For example, the shop’s machinery capabilities allow it to hold tolerances that differentiate it from the competition. As a result, the shop’s mission might call for targeting high-precision work that demands rigorous quality control procedures to eliminate defects.

In this setting, the estimator may look at a project that has very coarse tolerances as if it required the precision capability available in-house. This decision is likely to result in a very high price quote relative to the competition’s with less capital overhead—essentially turning away the super-easy in favor of the ideal.

That same estimator might come across a project that requires more than the normal degree of precision. Perhaps the parts will have to be 100 percent inspected and sorted to achieve the desired consistency in a delivered batch of parts. The tactic is to quote the hypercritical project as if it were “routine.” This will result in a low price quote relative to the competition’s, which passes on all anticipated manufacturing expenses to the customer.

This “hard-is-easy” approach will attract work aggressively at the extreme level of difficulty for the shop. This is not a sustainable business model. Giving good work away for no gain is nonsense. With experience based on its performance, the shop can adjust its pricing tactics over time to establish both the ideal customer margin as well as the ideal mix of manufacturing projects.

Specifically, what is an estimator looking for while trying to determine how well a project fits with the shop?

Verifying the Capabilities

The estimator uses retrieval tools to pull the previous history of the project when updating a price quote.In the context of a compatibility check, the estimator attempts to verify that the project can be built “same as last time.”
Given that the design of the project has not changed, the estimator needs to verify that all of the machinery, tooling, fixtures, and skill set remain available. If there is a deficiency in capacity, then the estimator might consider subcontracting or some alternative response to the RFQ.

In terms of tooling, the considerations are very trade-specific. The goal is to identify tooling expenses that must be included in the price quotation. As an example of a tooling compatibility issue, imagine working in a sheet metal shop that operates a CNC turret press for punching and profiling the flat blank. To punch a rectangular hole, punch and die tooling can be manufactured to the perfect dimension. On the other hand, a smaller punch—either square or rectangular—can be used with several strokes to carve out the desired rectangular cutout.

The estimator will need to balance the expense of obtaining the perfect tooling—in this case, the rectangular punch and die tooling—with the extra machine time, cosmetic appearance, and deburring requirements of carving the hole with several strokes using on-hand tooling. If the production batch size is large enough, dedicated tooling is a cost advantage. For small batches or quick-turn jobs, using on-hand tooling in a less-than-ideal way might be the most cost-effective solution.

In addition to tooling, basic compatibility with the machinery is a vital consideration. If the part won’t fit in the machine, the estimator shouldn’t quote the project. In the sheet metal trade, the press brake equipment presents several constraints on what is buildable. These constraints are not always intuitive to the designer. A frequent problem is sheet metal that crashes into the machine during the final folding operation. Part designers often don’t take that into consideration.

Not the least important is compatibility with the raw material. There are the obvious errors and oversights, such as calling for anodize on steel parts or tapped holes in thin sheet metal. Some materials will not flow in an injection mold given the required cross section and distance. Many metal alloys are difficult to bend in a press brake—without the proper inside bend radius the part would crack at the bend. If the estimator fails to note these pitfalls, the shop will be doomed to less-than-stellar performance by either failing to produce the promised product or by producing the project at a loss.

Each manufacturing process has limitations. These include tolerance and precision, compatibility with raw materials, weight and size range of the raw billet, and schedule availability. Trade-specific considerations include details like minimum hole size, distance from hole to bend, and depth of the hole.

Establishing a Dialogue

When the estimator is confronted with designs that violate some manufacturing constraint, the project obviously cannot be built as designed. The shop’s strategic policy will govern what the estimator is to do. It might be productive to have the estimator make design suggestions to improve the manufacturability of the project. For example, if the issue is with a hole specification that is too small, the estimator could quote it based on the hole being changed to an acceptable size and noting that deviation on the price quotation.
Sometimes the customer will welcome these helpful suggestions. This cost-savings suggestion dialogue is an additional service that adds value to the business relationship between the customer and the job shop. However, the suggestion also can be offensive to some. The customer’s response might be, How dare you question my design?

Making an Operational Impact

One of the joys of being a job shop is being a shared resource. Over time the estimator may see a trend developing in the variety of projects that successfully pass through the shop. Perhaps that trapezoidal cutout that has been made with several machine cycles—for several different customers—should be converted to a dedicated tool or workcell. This would be an investment in tooling that the shop would make to improve its prevailing internal operating costs.

This overall review of trends in project compatibility might lead the estimator to make internal recommendations for upgrades in machinery as well as in tooling. “Designed for manufacturing” applies to the product as well as to the production line. If you find yourself subcontracting a lot of the same thing, why not do it in-house if it would improve scheduling, expense, or quality control? The review of how compatible the shop is with the target market is not always part of the estimator’s job responsibilities. However, if suggestions are solicited, the estimator has access to a gold mine of information.

Reviewing the performance history of the shop’s bids is a powerful tool. Company management can find out how compatible the estimator’s quotes are with the shop’s business goal. Again, the metrics and policies for reviewing an estimator’s performance will be specific to each firm. We will generalize by saying that a gross profit can be calculated for each project completed in the shop. A target gross profit could be established and used as one of the measures of the estimator’s compatibility with the shop.

Regular review and focused adjustments in behavior should result in harmony. Sometimes the behavioral adjustments happen on the production line, either as a result of improved work order instructions, setup procedures, or improved training.

The estimator’s performance is a function of vision. Knowing what the shop’s internal capabilities are is a vital contributor to excellent cost estimating. An occasional sabbatical as a shop worker can help the estimator to complete better time-and-motion studies and predictions for manufacturing operations.
Attending tradeshows gives the estimator a chance to investigate state-of-the-art equipment, which might be needed in the future.

Visiting the customer enables the estimator to understand the context of the project. These visits can help refine packaging, inspection, and cosmetic handling procedures.

Tours of subcontractors’ facilities are another great way to expand the estimator’s skill set. Businesses change and evolve. Keeping up with the best in the shop’s business network gives the estimator a definite competitive advantage.

Adopted from the source:

Articles on Steps of Job Estimating

Step 3: Evaluate the fit of the product being quoted
Step 4: Preparing the "work order"
Step 5: Preparing the "time study"
Step 6: Anticipating the costs of material inventory
Step 7: Dealing with the nonrecurring onetime expenses
Job shop estimating: Programming, fixtures, and special handling
Step 8: Feedback from completed work history
Step 9: Anticipating the needs of the marketing effort
Step 10: Documentation for the marketing effort
Step 11: Review with an eye on improvement

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