Debunking Five Cost-Estimating Myths

Cost estimating manufactured parts for an RFQ is one day-to-day problem that confronts manufacturing shops around the globe.

This article debunks five myths surrounding cost estimating for manufacturing. These myths have been uncovered over the years through talking with thousands of estimating managers, customer surveys, trainings, and on-going feedback. Offered up are suggestions and improvement opportunities that can save, or greatly improve, your business. This means retaining satisfied customers on profitable jobs.
 

1. A Numbers Game – More quotes will equal more jobs!
   
   This can actually come back and bite you financially. Your customers may be initially impressed when they receive a quick quote, but not when over time the pricing greatly fluctuates. Inconsistencies will cause suspicions about a supplier, which results with your customers requesting fewer quotes from you and more quotes from your competition. Smart buyers have independent cost benchmarks and quote analytics to weed out inconsistent bidders.
   
    
2. Use One Shop Rate – Thinking that everything will balance out could not be farther from the truth!
   
   If you price jobs on low cost equipment verses high priced machines your smart customers might run from your shop. At a greater cost, though, your smarter customers will only ask for parts processed on your expensive equipment. This makes your sales team happy. However, how happy will your management and the owners be when profits are less than anticipated?
   
   
3. Lowering Quotes - Lower prices, consistant customers!
   
   While this may seem truer than the first myth, just lowering the price may only work until the recorded profits are down. By offering consistent numbers, with details to back up the numbers, customers are more successful. Over time, they will receive more orders and retain happier customers.
   
    
4. Status Quo – Just use the last estimate; our historical pricing keeps us winning orders!
   
   No one knows the current price unless it is re-estimated on better, faster equipment. The historical price may be a good starting point, but effective cost estimating systems actually do more than provide a historical template. They help track data and update information quickly, reducing errors through built-in formulas.
   
   In addition, with smarter customers wanting more information and better answers, it can be rather time-consuming trying to defend somebody else’s guesstimate, let alone your own. Guesstimates become liabilities, which cost money, while you run the risk of losing the confidence from your customer, which can lead to more lost sales and, ultimately, lost customers.
   
   By not relying on historical pricing, you have a much better chance of consistently beating your competition while attaining higher profits.
   
    
5. Speed – Deliver the quote and the job is yours!
   
   There have been many successful economies where this example has performed well. While being quick to deliver a quote is certainly one determining factor, you might find your smart customers also want more than just speed. They want accuracy, consistency, and the ability to update the quote with a quick response from you. They may want to change features, swap a material, modify quantities, and/or substitute purchased parts. Moreover, they should expect a quick and consistently accurate response to their update request.
    

Costimator provides cost-estimating, process planning, and quoting. By using a database-designed system users get more than just speed, accuracy, and consistency; they get the ability to instantly update and respond to customers, in most cases, while right on the phone. We hope these busted myths provide you the encouragement to explore new opportunities for estimating.

MTI Systems Inc.
W. Springfield, MA
mtisystems.com