Job Shop vs Contract Manufacturing
As manufacturing went overseas, the need for domestic sources of component parts has dramatically dropped. Plastic injection molders, metal stampers, machine shops, and similar manufacturers, have vanished, gifted and experienced craftsman made redundant.
One such company measured its success based on the volume of quotations being processed each week. That’s how the sales reps were held accountable. To grow their business, they just added more reps. If they processed more quotations, just playing the “numbers game” should help grow the business, right? WRONG!
The quoting activity had evolved into busy work, absorbing many of the company’s resources. Backlogs in both the estimating and engineering departments were more frequent. Next step -- overtime or hire more people in the estimating and engineering departments. Sound familiar?
Before the hiring was approved, a few questions were asked.
How many quotations did we get last month?
How many no bids?
How many became purchase orders?
Less than 30% of the jobs were being awarded. That begged the question on the remaining 70%. Why didn’t they get the business?
Keep in mind, the company had been using the same boilerplate system for quoting new projects for years. Always happy to quote new business, get new customers. No one had ever questioned the process or the strategic value of the opportunity.
A closer study of the fallout yielded some very interesting observations. Many of the quotes were just an exercise in futility with minimal chance of winning the business. The prospective customer was merely using a competitive bid to keep his existing customer in line. The company immediately began rationalizing their quotation criteria. Identified prospects and markets that were not a good fit and concentrated on developing a lower cost lean, manufacturing solution for niche industries. Instead of looking at their raw material needs on a case by case basis, they looked at annualized purchases over the previous five years and quoted the business based on annual needs.
They shed the “Job Shop mentallity” and presented themselves as a “Contract Manufacturer” who were far too valuable a resource to their customers than a mere quotation mill.
The company doubled its annual sales within 3 years of the change and net profits increased almost threefold.