Jay Jacobs was the founder and CEO of RAPID, a CNC machining and sheet metal shop that grew to $50M in sales and was sold to Proto Labs, Inc. (PRLB) in 2017 for $120M. Today, Jay is a champion for American manufacturing and is working through Paperless Parts to enable job shop owners to compete in today’s increasingly digital and web-based business world.
In the first couple years at RAPID, I did a customer a favor. We shipped parts early and had it backfire on us. Initially, our quote was sent with a seven business day lead-time for the requested prototype sheet metal parts. The customer called me saying he desperately needed the parts and asked if he could get them shipped in three days. Since we were not busy and I wanted to please my customer, I agreed and we shipped the parts in three days, not charging any extra for the fast turnaround.
A month later, business had picked up, we were busy and RAPID had a backlog, so we were shipping at the normal seven business days. The same customer sent in a RFQ and we again quoted a seven business day lead-time. He called pleading an urgent need and asked for the parts to ship in three business days. I told him we could but since the shop was near capacity, there would be an expedite fee to do so. To my surprise, he got angry at me and said we were gouging him. My explanation of how we would have to pay overtime and express ship in the material fell on deaf ears. I caved and shipped the parts early at no extra cost.
Has this happened to you? Are you subject to the whims of customers demanding faster turnaround times? In trying to please a customer, did you create an expectation that couldn’t be met in the future or did you overload your shop creating missed deliveries for other customers? Or both? For us, it was the worst possible scenario. We created more stress on our shop, did not get paid for it and then were made to feel like jerks. All for doing someone a “favor”.
As I thought about the incident and how to handle future requests, UPS came to mind. How would they react if I called and asked “Hey, can you guys do me a favor? I just realized I really need this shipment delivered tomorrow. I was planning on using Ground, but can you Overnight this package at the same price as Ground?” They would laugh! And it made me realize UPS manages customer expectations by making the premium placed for expedited delivery known. UPS customers know upfront they have a clear choice. They can place a higher value on time over money or a higher value on money over time. Customers don’t feel gouged. Customers don’t try to find another shipper. Rather they feel good that they are in control on the delivery date and have options. The lightbulb went off. Managing this expectation was essential to building a profitable and less stressful business.
My solution was to standardize expedite fees. We included a table of different expedite options on each quote, allowing the customer to select the desired ship date. It worked. And to my surprise, this had several other positive benefits!
First, it took the emotion out of the situation. We didn’t have to negotiate lead-times. The customer had the options in front of them. I wrote out a script and when customers asked for free expedites, I explained why we charged more and that there was a value to the faster delivery. My stress level decreased.
Second, it separated those who really needed the parts and those crying wolf. The expedited orders were real needs and the deliberate act of paying more money demonstrated that they valued our service.
Third, it helped RAPID be a better business. Our business model revolved around speed, so RAPID may be different than your business model. But by having to do things faster on a regular basis, our systems had to adapt to ensure we kept our delivery promise. The adapted systems also had unexpected benefits for parts shipped at regular lead-times and resulted in cost-savings all around.
Fourth, there was an opportunity cost to making parts faster at the same price. By charging for expedites, we got less expedite orders which created openings for customers willing to pay for expedites. We worked less for more.
Finally, RAPID made more money. At times, 10% of our revenue was expedite fees. There were definitely costs associated with the faster deliveries such as over-time, expedited shipping charges for materials and sometimes extra labor in us driving parts to and from platers rather than waiting for the normal pickups. But in general, more money fell to the bottom-line.
At this point perhaps you are saying “This makes sense. Yes, I need to charge for faster turnaround. But the way I quote makes it really hard or impossible”. There is a simple way to quote charging more for faster lead-times. Paperless Parts has created simple-to-use quoting tools that enable you to automatically add in and clearly communicate extra charges for expedites. The digital pricing tools also help shops quote tighter and faster than ever before.
So the question has changed from “Can we get parts sooner?” to “Are you willing to pay for it?” It is simply up to you to make the change.
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