Sizing Up The Job – Quoting Strategies for Tube Bending
Accounting For The Details
It is something we are often faced with; putting a price on a fabricated tube that we are asked to quote. Many factors can come into play. Some so obvious we tend to gloss right over them. And some factors are not so obvious. Getting a quote right so that both parties are satisfied can sometimes be separated by a fine line.
Bottom Up
This approach is one of the more common. Add up the cost of goods sold (COGS) and then apply a multiplier to the COGS that covers the overhead and a modest profit. The cost of goods sold may include raw tubing, plating, fittings, direct labor, tooling etc. The list goes on. Fabricators often have a spreadsheet type program that helps them quickly build a financial picture of the COGS.
The multiplier itself is market dependent. Multipliers in the tube fabrication industry can range from 1.2 to 5+. It just depends on the specifics. For example, on a single bend part, the market may demand that the multiplier be below 2. In contrast, a 6 bend part that has compound bends may allow for a larger multiplier. Not everyone will or wants to quote the compound part. It can bring on complexities that not everyone is willing to deal with. Also, the multiplier applied is dependent on the existing overhead of the quoting company itself. Thus a smaller company with a lower overhead may be able to quote with a lower multiplier while at the same time realizing a modest profit.
Overhead itself often takes into account salaries, insurances, rent, utilities, etc. One component of overhead may be research and development. You will find this component in pricing structures where strategic planning is vital for long term success.
Another variation of the bottom up approach is sizing a job via time and material. Time is labor at a certain dollar rate and the cost of materials is passed on to the customer. Straight forward and simple. This approach tends to prevail when the bidder is surrounded by stiff competition. In this approach, the labor dollar rate should include the overhead.
Top Down
What is the part worth to the market? This is the question asked by some who are interested in exploring an alternative view to quoting. Sometimes the market is willing to pay well beyond time and material. Yet sometimes the market is not even willing to cover the local COGS. In this case the market often seeks out foreign suppliers who sport lower COGS. On the other hand the challenges associated with making the tubular part may drive the market.
For example, a load of fabricated tubular parts may be expensive to ship 300 miles via common carrier and thus a local supplier gets an instant leg up. Another example may be that the same load of fabricated parts may be awkward to ship via common carrier and once again helps a local supplier.
The top down approach is sometimes considered by a bidder when a buyer makes the current pricing known. In this case the bidder is able to evaluate his COGS and then compare them to the current prices. This can be good and it can have its draw backs.
This approach has a tendency to leave itself wide open for the next guy to come in and provide a quote using a more straight forward strategy. It is market dependent. It’s that simple.
George Winton, P.E. designs and builds CNC tube fabrication equipment for Winton Machine in Suwanee, GA. He can be reached at gwinton@wintonmachine.com or 888.321.1499.
About the Machines We Build
All of our semi-rigid coax and tube fabrication machines at Winton are designed, manufactured, and tested in-house. We have a large line of standard products as well as the ability to engineer the best solution for our customer’s needs. Our experienced sales staff makes sure that our customers can justify their capital equipment investment by offering a solution that is exactly what they need in order to manufacture their parts. Please contact us today to discuss your project.