Contract Review - Budgetary vs. Firm, Fixed Price Quotes

[The Moose]

Hi everyone,

My company is aplastic injection moulder about to start converting from ISO 9001:2000 to TS 16949, as part of this we are also switching certification companies to one with a better TS presence in our area. This will mean a change of auditor from one who know our business and industry intimately to a unknown (it shouldn't make a difference I know - but Im a born worrier ).

The area which concerns me is Contract Review, currently we receive far too many "benchmarking" quotes (from customers who are using a UK price to justify carrying out work in a lower cost area) for our Engineers to carry out a full contract review before submission of the final quote. We have developed a halfway house whereby our Quotes Engineers have a manufacturing background and can accurately estimate for the majority of mould only work and who will seek expert advice in specialist areas when required (i.e painting, lasering, metallising, legislation etc). Once a quote is successful the quote is then passed to "production Engineer" who will then carry out a full contract review. In order to make this a more procedure driven rather people driven process the "Quotation Engineers role" specifically asks for someone with appropriate manufacturing experience.

Is this process sufficient or have we been lucky withour current assessor or does anyone have any suggestions for systems which work in this environment

[Marc]

Quite normal to have a 'short' review for what I would call 'budgetary' or 'rough order of magnitude' quotes. However, is anyone tracking 'budgetary' vs. 'firm, fixed price' quotes? That is, are budgetary quotes always far below, on par with, or way above 'final' quotes? If they're always low, for example, you may end up losing business through lowballs ("Well, they always give low quotes first and then when we have a basic level of committment their quotes go way up - So, their initial quote is useless..."). Or, even worse, is where a low budgetary quote is given, a firm quote is requested and at that point sales will do 'anything' to keep the final quote in line with their budgetary quote.

[Wes Bucey]

When I was in the high tech contract machining business, "comparison quoting" was a common practice for purchasing agents.

I saw the process as a wasteful intrusion on a supplier if (as in many cases) the purchasing agent was just blatantly looking for ammunition to beat his current supplier over the head and there was little or no hope of getting the job away from the current supplier.

We turned the process on its ear by countering a request for quotation (from a new prospect who was not a current customer) with an immediate phone call asking simple straightforward questions like

1. Do you currently buy this from anyone else?
2. If so, why are you seeking other quotes? Are you dissatisfied with quality? service? price?
3. If this is a new product, how many folks are you asking for quotes?
4. What are your true quantity projections per year? How do you know?
5. Would you like to engage in a concurrent engineering session to help your engineers work out the most inexpensive design to fit form, fit, function requirements?

If the prospect balked at answering the questions, we simply said, "OK! Our answer is NO QUOTE!" Always seemed much more efficient to weed out shoppers and fools BEFORE spending time and money on working up a quote. We also no quoted if the answers weren't to our liking.

(If we got past the initial questions, we always had more, but they were all focused on getting a clear understanding of requirements.)

[Kevin H]

Wes, I really like your response to RFQ's, and the potential to weed out the time-consuming ones that are being requested just to get informational numbers that wouldn't result in an order. We used to see a lot of that in the steel industry - usual response was a no-brainer - standard price/quantity, standard mill capability for section, and standard delivery time. Even that took time that could have been more productively used elsewhere.

[Wes Bucey]

Obviously there is a difference beteen quoting quantity and delivery on off-the-shelf items versus custom-made to customer specification. One just means a quick look at inventory and production schedule, the other requires process design and pricing of raw material.

40 years ago, Ann Landers, the advice columnist, wrote "Nobody can take advantage of you unless you let them." Still seems to hold true.

Sometimes, especially with intricate and tricky designs, we told the prospect/customer who survived the initial screening, "This is a relatively difficult design. We can give you a ballpark figure which might require refinement as we get down the road OR we can spend some real time and effort to narrow the estimate to a price we can absolutely guarantee. The ballpark number will be free and you have to trust us to do our best to give you an honest number down the line regardless if it is higher or lower than the ballpark. If you need the guaranteed price, we will charge you $100/hour for the engineering, estimated at _____ hours, which we will credit on your first order."

I never had a customer balk at that point, having taken him through the screening beforehand. I guess we came across as SINCERE people.

When the shoe was on the other foot and I had to get an estimate from a supplier, I used the word "estimate" and asked for a high-low range to be refined if and when I got an order from MY customer. Most of what we bought were commodities (ferrous and non ferrous metals), but they were subject to frequent fluctuations in price and lead time.

[Caster]

Originally Posted by The Moose

Hi everyone,

The area which concerns me is Contract Review, currently we receive far too many "benchmarking" quotes (from customers who are using a UK price to justify carrying out work in a lower cost area) for our Engineers to carry out a full contract review before submission of the final quote.

I bet these also come in a big package on Friday afternoon for immediate quote!

We used a conditional quote. There were 4 or 5 boilerplate conditions on every quote stating it was for budget purposes only, based on insufficient information, blah, blah, and that we reserved the right to requote as more information became available.

As the job got more serious more effort went into developing an understanding of customer needs and serious price negotiations began.

Never had an auditor or customer concern with this.

Remember the last piece of paper on top wins. Look at any Big 3 PO for lots and lots of great wiggle room clauses to use for yourself.

Kudos to you for having knowledgeable mold makers looking at these quotes. These guys pay for themselves by preventing disasters quoted through ignorance of requirements.