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Those Low Volume, Low Value RFQs Could Be Low Hanging Fruit

Sept. 29, 2020
Ignoring the low volume, low price RFQs fails to recognize the potential benefit to the organization's future stability.

When founding Paperless Parts in 2017, Jason Ray was focused on leveling the playing field for custom part manufacturers, from a software perspective. "They often are using one or two pieces of software where the rest of the industry is using dozens of different software tools to drive efficiency," he says. "We set out to build tools that enable custom part manufacturers to better communicate and more effectively quote on jobs."

A key to accomplishing this goal has been to help companies prioritize sales and their quoting activities so that estimating can drive the business rather than allowing production to drive estimating.

Understandably, requests for quotes (RFQs) play an interesting role in job shops, especially when looking at how differently companies treat RFQs from existing customers compared to prospects. "Both are very important. Yet, job shops often prioritize the RFQ from the existing customer because they're afraid of losing business or negatively impacting the relationship," says Ray. "Although understandable, ignoring an RFQ from a new potential customer can end up driving customer concentration, which is also why we're seeing a situation today in custom part manufacturing where some shops are really thriving today, and other shops are barely surviving."

The issue? "If you work heavily in one industry or depend on one or two customers for majority of your business, you are at the whim of the success of those customers," says Ray. "And a lot of that starts with what you do during the quoting process."

Having a production-only focus can result in a lot of missed opportunities. "Unfortunately, it's not uncommon for a job shop to avoid quoting the low volume opportunities -- instead waiting only for production RFQs. That is just not how most industrial buyers work," says Ray. "They want to first establish that relationship of trust and get a feeling for your on-time delivery or quality capabilities."

The way to build those relationships with new customers is to effectively manage those initial lower value opportunities. "Businesses need to be thinking about customer acquisition costs, and a lifetime value of a customer," says Ray. “That type of analysis is rare in most job shops today. And success usually comes back to the ability to quickly evaluate an RFQ and respond to the customer."

Naturally, Ray is not suggesting that job shops quote every opportunity. Instead, the response could be something along the lines of "this is not the right work for me." Being able to respond whether it’s a quote or quick explanation of why it’s not a fit demonstrates that the shop is responsive.

"A lot of times shops will go down a rabbit hole on a very large quote for an existing customer, and that quote might have 150-line items on it," he says. "At the same time, you may receive a request from a new customer that has a single line item on it -- something you could address in a matter of minutes, but don't because your strictly focused on getting that quote package out. That's a big mistake".

New mindset

Having that process flow mapped out from RFQ to order is crucial if companies want to be intentional about evaluating RFQs when they come in.

Taking the linear approach of addressing RFQs as they enter inbox strips the quotation process from prioritizing requests based on other aspects such as how many part files are in the package. The problem with this approach is that easily winnable work can quickly fall by the wayside.

However, if businesses take a big picture or dashboard approach, it enables bidders to better prioritize requests and quickly pick off that low hanging fruit quickly. This can have a huge impact on a company.

The importance of avoiding the tendency to only prioritize existing customers came to light when the pandemic first started impacting manufacturers. “Unfortunately, a lot of those existing customers ended up canceling orders or cutting production quantities as we got deeper and deeper into the pandemic,” says Ray. “Whereas, the shops that were able to go out and capture that new work from new customers have built relationships that have enabled them to carry their production capacity, cover their expenses and keep people on.”

Ray tells IndustryWeek, a big distinction exists between the Paperless Parts software and others focused on manufacturing. Specifically, a lot of the software packages invest engineering time outlining every process to create the part the customer is requesting. The challenge with this approach. The desire for the MRP system to drive an effective production process from the order coming into the parts being shipped puts a lot of that planning and intellectual property creation on the quoting process, which has the negative effect of slowing the quoting process.

Instead, Paperless Parts takes a middle of the road approach with activity-based costing that is geometrically driven. "What is the market price for this component? How do we arrive at the right market price for this component? This allows you to very quickly find the right combination of speed of quote, speed of delivery time and price," says Ray. "We really focus on enabling secure interactions. In manufacturing It's one thing for us to have a conversation. It's another thing for us to have a conversation in the context of the part files." 

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