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.
A shop’s product mix, the types of jobs running in the shop, can make or break it. The right mix increases profitability and makes for happy customers. The wrong mix risks demoralizing the shop and upsetting customers, ultimately resulting in more stress and less profit. Actively managing your product mix to correctly fit your shop makes life much easier. However, it does take intention to step away from the jobs you know your shop can, but shouldn’t do.
What are some of the risks of the wrong product mix? First, whether you have thought about this before or not, you can feel when the right jobs are in the shop. Things just flow, it is easy. And conversely, you know when the wrong jobs are present. Friction and havoc are everywhere. You increase the chance that jobs will be late and be made wrong. Think about the people in your shop. Only certain team members have the higher level skills to make the “wrong jobs”. Having too many wrong jobs means that under-skilled people are assigned to make them. It takes them longer – exceeding quoted hours and ultimately missed deliveries. And they may have to get the skilled people to help a little (then the skilled people’s jobs end up shipping late). Or they try their best yet the jobs need to be reworked or remade. Overtime often then becomes mandatory to get the work out but these hours/ dollars weren’t included in the quote.
So what is the right product mix and how do you manage to it? One way is to split parts you make into different categories. For machined parts, we had simple, medium, and complex buckets which was based on geometric complexity and tolerances (and of course, also a no-quote bucket for stuff that we couldn’t or just wouldn’t do). Our view was that we were a precision machine shop who didn’t want to make precision parts. In other words, we had the skills and capabilities to make precision parts but understanding the higher risks involved in precision parts, we choose to call these complex parts and minimize the number. Understanding both your shop’s capabilities and the types of parts you want to make will determine how many buckets you have and what the definition is for each bucket.
Since our business model was quick turnaround parts, we wanted to eliminate risk. In this environment, risk meant primarily not shipping the job on time. Although it varied somewhat, in general, we were happiest when we had approximately a 60% simple/ 35% medium/ 5% complex product mix. This meant there were lots of simple jobs that just flowed through the shop and as a plus could be quoted by anyone. Any machinist could make them on any shift and they were easily programmed. Medium jobs generally involved more setups, time on a machine, one-off fixture or a combination of the these. Programming complexities were usually more demanding. Medium jobs limited the team member who could make them and we felt there was a higher risk of rework or a remake, potentially affecting the delivery commitment.
Complex jobs could not be totally avoided. Sometimes for good customers, we had to take complex jobs. It is the give and take of a good customer relationship. However, these were taken only with the gravy jobs, and the hourly rate was much higher for them (who says you can’t have different hourly rates for different difficulties of parts which will compensate you for the higher skill level of person needed to make the parts AND the risk associated with the complexity).
Sounds great but how do you implement? Rigorous review of the percentage of jobs in each bucket in our shop was reported every day. Management knew the number – it was a key metric. It is also helpful to report the percentage for orders taken the previous day. When percentages start to skew, it is useful to alter quoting methods. For example, to reduce the number of complex parts, options may include no quoting, raising the hourly rate even more (It works!) and deliberately extending the time to return a quote for complex parts.
How do you get started?
- Think about what flows easily through your shop. Geometries, materials, processes. Think about what causes problems.
- Create three to five buckets and a definition and examples of parts for each.
- For the next 30 days, measure the % of each bucket in the shop and % taken in new orders the previous day.
- Finally, implement quoting strategies to win the right product mix – this is hard to do without the right tools, but is a core functionality of the Paperless Parts platform.
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