Was there ever a better subject for a Cautionary Tale?
Underestimating your costs will lead to too low a price,
which you won’t easily be able to increase. Overestimate your
costs and your price will be too high, and your competitor will
get the job. This assumes that the link between costs and price
is accurate, but it is not.
The price is seldom right; it usually is too low. This could
be because your salesperson has reduced the price, maybe
below cost, in order to secure an order that is good for the longterm
strategy of the company. Other times, the salesperson is
confronted with fi erce competition and returns to his company
with the story that this was the top
price he could secure, but he has the
order for several years, so now the
company will have to fi nd a way to
drive its costs down.
How to drive the cost of springs down is
beyond the scope of this Tale, and
it is my intention to keep to more
technical and less business-oriented
subjects. However, it is impossible
to discuss technical issues without
having a clear understanding of
the cost and business implications.
The technical aspects of costing
the manufacture of a new part are
certain to be influenced by past
experience of making similar parts.
However, getting the relationship right between batch quantity and price requires more sophisticated costing than basing spring price upon “past experience and a gut feel.”
It is clear that a salesperson should be armed with as many
facts as possible before negotiating a price. He will have a drawing or blueprint for the spring, some notion of the quantity
required and an estimate of the number of years that it will be
used. He will know roughly what the spring is expected to do,
but not always, and is seldom given enough information about
function, and this is another point of this Cautionary Tale.
Know the Technical
Requirements When Costing Springs
A spring company recently supplied double torsion springs
for a public transport door-closing system. They checked the
design using the operating positions that were provided by the
buyer. No problems were apparent.
The spring ought to have met
the spring design life (years and
number of cycles) without problem,
and this assurance was provided
(verbally) with a written quotation.
Six months later, the springmaker
was surprised to hear that springs
had started to fail. Two months
later still, they were provided with
an example failed spring without
its operating legs, which were lost.
Inspection quickly revealed that
the double torsion spring had been
operated in the unwind direction,
whereas it was presumed to operate
in the conventional wind-up direction
(see “Cautionary Tales Part III, Predicting the Life of
Torsion Springs,” February 2001).
Cases like this typically occur in a large company, where
engineering designs a part and gives the blueprint to buying
to procure. Indeed, the majority of the spring industry’s customers
are large companies and do this. Your salesperson sees
their buyer, all reasonable design checks are made about the
part and a price is negotiated together with a fi ve-year supply
agreement, but the springs start to fail after six months because
one vital fact was overlooked.
Would a more sophisticated costing system have avoided
this problem? Of course not. But most springs have no hidden
problems, and the large corporate buyer is able to secure a
good deal for his company – probably too good a deal. The
price will be low and getting lower long-term. The small
springmaker, trapped between the large steel companies who
supply the industry and their large-company customers, will have to accept the low price because their competitors will if
they don’t. That’s the way business life is.
Accepting the low price, however, should be done based
upon the best costing data available. Costing should be undertaken
at the time of checking the design of a new part. For
this reason, IST has recently developed a costing module that
can be added onto any of its CAD programs. This allows the
spring manufacturer’s cost estimator to produce a cost estimate
for manufacture and a nominal selling price, as shown. Of course, this is only an example of a
cost-estimating form, but it emphasizes the incontrovertible
link between spring design and costs of manufacture.
The CAD program will tell you whether prestressing or
shot peening is required. More importantly, it will highlight
tight manufacturing tolerances or risk of buckling, which
would affect your costs signifi cantly. Furthermore, use of a
CAD program as the basis for cost estimating allows for the
production of a drawing of the spring, which can be taken to
the shop floor by the estimator to obtain fi rst-hand guidance
about setup times and production rates from the person who
will have to achieve or better the estimate.
When the order is secured, the shopfloor personnel know
they were part of the process by which the order was secured,
and the team ethic will be reinforced. The salesperson will have
had his price squeezed of course, but he’ll know accurately how
far he can yield to the buyer’s pressure. He will have to assume
the buyer’s information about the spring is complete.
Mark Hayes is the Senior Metallurgist
at the Institute of Spring Technology
(IST) in Sheffield, England. Hayes manages
IST’s European Research Projects,
the spring failure analysis service, and
all metallurgical aspects of advice and
training courses given by the Institute.
Readers are encouraged to contact him
with comments about this column, and
with subjects that they would like to
be addressed in future installments, by phone at (011) 44
114 252 7984 (direct dial), fax at (011) 44 114 2527997 or
e-mail at firstname.lastname@example.org.