How to Deliver Parts On-Time While Making More Money
In my discussions with job shop owners, it is common to hear that only 80% to 90% of parts are shipped by the committed due date. The consequence is distrust between the buyer and the shop, creating friction within the relationship. Friction increases the odds the buyer will move business to a competitor.
At RAPID, we consistently delivered parts on time, or sooner, 99+% of the time. Shops who consistently deliver on time, in the high ninetieth percentile, are rare and considered more valuable suppliers. This translates to higher win rates, higher profits, and the buyer is less likely to move the relationship to another shop.
So why don’t shops, despite their best efforts and intentions, have a higher on-time rate? Simple. They book to 100% of capacity. Owners want to maximize machine time and get nervous if they don’t see the shop booked completely. They fear idle, unbillable machine hours. Hours they can never get back. Dollars that can never be earned. But…this is Not True!
What happens when a shop is booked at 100% capacity? Late deliveries. Why? Well, what happens when a “good” customer calls and needs parts sooner than the quoted or committed delivery date? The shop says “Yes” and then there is a scramble to rejigger the schedule. This probably means someone else’s job will be late. And how often does every single last job in the shop go smoothly and not need rework or even to be remade completely? Scheduling assumes 100% smooth sailing but when the “Gotcha” happens, the schedule falls apart. Someone else’s job gets pushed back and ends up shipping late.
How did RAPID deliver parts on-time 99+% of the time? By changing the way we booked parts. In our machine shop, we booked to only 80% of shop capacity, starting from Day 1. This always gave us wiggle room in the schedule and enabled us to satisfy customer demands for faster deliveries. It also gave us space to recover from the inevitable shop mistakes and not impact other customer deliveries.
At times bookings would exceed the 80% capacity and for important customers, we pushed jobs into the schedule. But we strived to not book 100% and extended lead times instead, knowing a buffer in the schedule was critical to being on time. And since our business model involved satisfying faster than normal deliveries, we were confident that the schedule would fill up. Conversely, a production shop may not see many expedites and would instead pull in orders, delivering early. Worst case scenario for RAPID was the expedited delivery requests did not happen, further out jobs were moved in to get to 100% capacity, and we shipped regular delivery parts earlier than promised. Shipping early makes customers happy.
By the way, we always charged customers when they requested faster delivery. Time is Money and we felt that we should be compensated for the value of our Time. Therefore requested faster deliveries were offered with what we called an Expedite Fee. The decision was then in the hands of the customer and they controlled the lead-time. If the customer felt the gain in getting parts sooner more than offset the premium, they paid the expedite fee. And the extra overtime, strain on the shop, and hoops jumped through to get parts to and back from platers was worth it.
So do you want to deliver parts On-Time and Make More Money? Ditch the 100% capacity booking model. Put a little breathing room in your schedule and check out how we are simplifying the quoting process.
Learn more by talking to our team.
This blog was written by Jay Jacobs
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.