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It's time to get tough with your customers. Huh? Although it hardly seems like the business climate will allow it, setting forth guidelines for your potential clients to follow will actually make you more profitable than if you regularly low-ball your quotes. In this second chapter of a four-part series, you'll learn how to create a policy manual that protects you from predatory business. (Read the first chapter, on establishing your policy manual, here.

Bill Tobin

April 7, 2011

7 Min Read
Leveling the playing field with a policy manual, Part 2: Quoting and getting paid

. Chapters 3 & 4 will be published in the next issues of e-Shots.)-Bill Tobin

2. How you quote

You quote a job with the full intent of getting it. Many companies (in the name of goodwill) will quote a job along with giving advice on how to make the job run better. While there's nothing wrong with this service, don't get hooked into requoting the same job over and over again with more and more design recommendations. What your customer is doing is milking you for free consultant advice. He really doesn't care how many man-hours you invest in critiquing his parts. He'll simply cross-quote you and go elsewhere.

Let's take a look at the information required for a quote. It's surprising how many designs are to be quoted with the following information:

  1. Quality: "Parts are to be free of manufacturing defects."

  2. Material: "TBD or plastic-'Blue.'"

  3. Tolerances: "±0.1 mm with a CpK of 6."

  4. Surface finish: "High polish."

  5. Packaging: "?"

  6. Percent regrind: "?"

There is no such thing as a part free of defects. There are however cosmetic specifications available from SPI that clearly define cosmetics. If there is a Form/Fit/Function specification, you should be provided with a gauge. Not all dimensions are critical. Mating part dimensions should be pointed out. All others should be reference dimensions and not subject to inspection after part approval.

Gate locations should be specified. Projected annualized volumes must be specified to facilitate the sizing of the tooling requirements. Not specifying the material is an invitation to disaster. Color specifications should either be to a Pantone or some other fixed standard. If you're allowed 10% regrind but your sprues, runners and scrap end up being more than 10%, not only must you charge for it, but also charge for its disposal.

References either to the SPI finishing standards or other standard (usually available from a texturing or polishing house) are required.

Without this preliminary information, you cannot give a valid quote. Your policy manual should define the omissions if they are not provided. If the requirements are impractical to meet, they must be pointed out as an exception.

Especially when the customer is using JIT purchasing, the pieces per container and containers per skid become critical. It is costly to ship partial boxes. If the customer doesn't specify the box size or number of pieces per box, you must do so. It is in everyone's best interest for you to use standard-sized packaging. Many companies include recommended standard box sizes in a policy manual. This standardization keeps the cost per box low. Custom packaging should be quoted separately.

The following are different kinds of quotes you'll encounter.

• Budgetary. While many customers are loath to admit it, usually the first generation of quotes is really to set the budget. This is the first make-or-break decision. If the component cost comes in too high, there is no product.

It takes a while to train your customer not to play "hide the pickle." If he wants a budgetary quote, have him ask for it. While it won't be accurate, it will be good enough to get the information he wants. Be very up front with this when you first receive the quote package. You know you're being used when you'll quote a lot of jobs for a customer but never get any. When this happens, ask either to be paid for your consultant advice, or be removed from the bid list.

• Tooling. Here you must reference a set of tooling standards that in turn references the minimum production capacity (usually pieces per hour); materials used; type of runner system and number of cavities; weeks to design, build, and try out; and timing for fine-tuning the mold.

It is also important to ask the customer to provide the shrinkage. Build to that number. If not, quote the shrinkage number. The caveat is that you won't go through endless tooling revisions to bring the molded part to fit the specifications if it is built to the specified shrink value.

It is important to provide the tooling standards to your customers to provide to your competition so they will all quote the same way.

• Production. Production quotes come in several varieties. Clarity is the real issue; each type of production quote requites a different strategy:

One-time quote. This is usually a quote for a part with only one or a few production runs. These are either seasonal or novelty items. Here your material costs, cycle times, and tool construction will not allow you to renegotiate.

JIT. Nobody in the molding business has the time or inclination to set up and mold 25 parts a day, although that's exactly what your customer wants. Here you set up a maximum retained inventory level and ship from your JIT warehouse to the customer. When the inventory level gets down to a specific level, it is then rebuilt back to the maximum without requiring the customer's authorization. Here you must have a schedule to ship against. It is usually a rolling four-week fixed (meaning no pull-ups, cancellations, or push-backs) schedule with a four-week planning forecast updated weekly. Rebuild authorization and shipping schedules must be agreed to in writing before production begins.

Split. A split quote is quoting the jobs in various lot sizes. The customer evaluates the quote and then chooses the lot size he would wish to receive his parts. If he agrees to a lot of 5000 parts at a given price, without a schedule, all parts will have a fixed lead time. With a schedule he can only order in quantities of 5000 per a schedule per one of the two above strategies.

3. How you'll get paid

• Tooling. Everyone deserves to get paid for his work as agreed. State your terms and hold your customer to them. There's no such thing as withholding payment "just to keep you honest." Typical terms are 30% on placement of order, 30% at 50% completion, 30% on completion, and 10% on approval. What's important here is that you don't do a sample run until the 90% has been paid.

 Your policy manual should state that the sample run is where you optimize the cycle to make production-quality parts. Samples should not be initial production. Keep the volume low (i.e., 20 parts maximum per cavity) because these are only inspection samples. Don't run any initial production until the final payment and a revised drawing has been received.

• Tooling changes/PO amendments. With complex projects, amendments can be as high as 30% of the initial quotation. These should be quoted exactly the same way as the tool is quoted so that complete payment for the total mold is done when the mold is complete.

 • Production. Since most production purchase orders have terms in the vein of "parts to print," make it clear in your policy manual you will not produce any production parts until the drawings have been revised to reflect what the mold is producing. If the supplier threatens to remove the tool you built and intended to run production, refer to the section on "removing the tool."

 • Payment terms. It is surprising how many companies flatly state their payment policy is "Net-60" or "Net-90." A quick reality check tells you the JIT shipment you made has already been manufactured and has probably already been sold at retail before they get around to paying you. Any contract is valid if you both agree to it. Whatever terms you agree to must be complied with.

 • Payment terms breached. When one party in a contract doesn't comply with the terms, the contact is said to be "in breach." Do not suffer fools lightly. If the terms stated in your manual are not complied with, there should be stated consequences. People who don't or won't pay on time are a risk to your company. It is important to remember that your suppliers are not tolerant of your delaying payment, either. In many cases, invoking the policy stated below will be enough incentive for the customer to take his business elsewhere-better he bankrupt someone else than you.

Some companies use a "three strike" policy:

  1. Strike 1-Action: The payment is late or insufficient. Consequence: The supplier is put on "Net 30" for the next six months before reverting back to the original payment terms.

  2. Strike 2-Action: The second late or insufficient payment within a year. Consequence: the customer is put on "Shipment COD" status. This means at the time of shipment, payment is given. No excuses. This lasts for six months and then the customer reverts to the consequences in Strike 1 before going back to the originally stated terms.

  3. Strike 3-Action: The third late or insufficient payment within a year. Consequence: The customer must prepay any order before it will be run for six months and then the customer reverts to the consequences of Strike 1 for an additional six months.

Consultant Bill Tobin is a regular contributor to IMM and PlasticsToday. You can sign up for his newsletter at www.wjtassociates.com.

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