Estimating Software Yields Higher Profits at Liberty Brass
by TechComm Associates
In 1999, after purchasing a computer-aided estimating system, Liberty Brass began an intensive, all encompassing operation analysis that included precise time studies for each piece of equipment in the shop. The results were a drastic shift in the company's corporate culture, the loss of the shop's three largest customers, and record breaking profit levels. "Over the seven or eight months that it took us to really analyze our costs, we learned more about our business than we had ever learned before. We went from the stone ages to the 21st century in one fell swoop and it was an unbelievable culture shock," says Liberty CEO David Zuckerwise.
The Decision Support Challenge
Although Liberty Brass, a 70 employee job shop located in Long Island City, NY, is managed by third generation co-owners, CEO David Zuckerwise and his brother, President Peter Zuckerwise, it owes its record breaking profit during the first half of 2000 to operating procedures put in place in the prior two years.
According to David Zuckerwise, Liberty Brass is essentially a screw machine shop. However, the company, which was founded by the owners' grandfather in 1919, also performs contract manufacturing services on lathes and machining centers. In all, the shop uses approximately 50 automated machine tools to make parts for its customers in the automotive, lighting, plumbing, decorative hardware, furniture, and instruments industries. Zuckerwise says that 75% of the jobs the shop sees are repeat orders, with first run jobs making up the balance of the work load.
Until early 1999, quotes for both the repeat work and new jobs were based on an Excel model developed by shop personnel. At that time, Liberty started using an engineering based estimating program in an effort to truly factor its operating costs into its bids for jobs. "We wanted to make a commitment to learn what our actual costs were and to make sure we accurately included both overhead and direct costs into our pricing," Zuckerwise recalls. "We wanted to make sure that our profitability was where it should be, and our Excel model did not really take into account all of our overhead and costs."
Decision Support Solution
That line of thinking prompted the brothers to purchase a dedicated software system for estimating. Liberty chose Machine Shop Estimating (MSE) from Micro Estimating Systems, a subsidiary of the industrial technology holding company, OnCourse Technologies, Inc. (stock symbol: OCTH). David Zuckerwise says the program, "appeared to meet our needs much more completely than its chief competitor."
The Zuckerwise brothers also decided that a drastic shift in the shop's corporate culture was necessary to take full advantage of its new software. As a result, MSE was purchased in 1998 at the beginning of an intensive, all encompassing operation analysis that included precise time studies for each piece of equipment in the shop.
Machine Shop Estimating 9.0 screen shot
"It took us that long to feel confident about our work center costs. It was a tremendously valuable experience because it enabled us to learn more about our business," David Zuckerwise explains. "Over the seven or eight months that it took us to really analyze our costs, we learned more about our business than we had ever learned before. We went from the stone ages to the 21st century in one fell swoop and it was an unbelievable culture shock."
Without a shop management system, which it has since purchased, or any true idea of its operating costs, which it now has, Zuckerwise characterizes Liberty as a typical old line company. "At the end of the year, we made a profit. We made a fair living, and we were reasonably content to work in ignorance of our true costs," he says. However, that all changed when he and his brother took a good look at trends in their industry. They realized that to remain profitable in the new global economy, their enterprise would have to become much more dynamic, leveraging knowledge based on their experience, the shop's actual operating costs, and an honest and accurate assessment of its strengths and weaknesses.
Two distinct results of this paradigm shift at Liberty have added up to record profits. The first is using second source parts where appropriate, and the second was targeting a reasonable profit level based on actual operating costs. Both have turned out to be highly successful strategies, although the second did result in a counterintuitive loss of customers.
Once the data from the time studies was added to the MSE speeds and feeds library, estimates for the shop's existing jobs were calculated using the software and the shop's new target levels for profit. As a result, Zuckerwise discovered that many of the high volume jobs the shop performed for its three largest customers did not meet the new profit standard. When Liberty suggested a rate increase for those jobs, in most cases the customers balked and took the business abroad where they could find the pricing they wanted.
"Our eyes were so opened that we basically got rid of our three largest customers by raising their prices. The jobs from those customers were somewhat profitable, but they weren't as profitable as they should have been. Over the course of the year, we didn't actually make up the difference in that business in terms of volume, but we more then made it up in terms of profit by opening capacity formerly not available to other customers who would allow us to work on a more profitable basis," Zuckerwise explains. "My dad used to say, 'It's a washing machine; you take the marginal jobs, you take the high profit jobs, you throw them all in the mix, and in the end you make a profit.' And that's the way we worked for many years. But, we determined that we could not continue to work that way if we were to remain competitive and profitable in the future."
Using Estimating Software for Decision Support
Since its installation, Zuckerwise says Liberty's estimating software has often acted as a very important sales tool, helping the shop meet its profit target and its customers' price expectations at the same time. The shop's two estimators do this by taking advantage of the software's ability to simultaneously calculate estimates for up to seven part quantities on one screen.
"If a customer comes to us and says we have to meet a price, we're able to expand our quantities until we get to that price if it's achievable. Sometimes a customer will say, 'I need 500 pieces, and I need to be at .80 cents a piece,' and we say, 'We can't do that for you, but we can make 1,250 and meet that price.' So just by adding the quantities, you can often reach the price level that's desired," he says.
An estimate for every new job the shop bids is calculated in its estimating software. When the parameters for a job will not allow Liberty to bid for a contract with an acceptable profit margin, the shop now knows to pass on the opportunity rather than win the job at a low price and lose money as a result. Or, when feasible, when it should go to a part supplier for a component of the job.
Buying components for assemblies from overseas suppliers or outsourcing them to other local manufacturers who are better equipped to make them profitably is another important aspect of the paradigm shift that has occurred at Liberty since the addition of estimating software. In addition to helping the shop win jobs, Zuckerwise says the software also helps him decide which jobs, or which aspects of jobs, to stay away from.
"It has shown us what items we shouldn't be taking. In many cases it's also shown us when to outsource these items, from suppliers that are better able to make these parts than we are. It's more palatable to work at a 35 or 40% markup on purchased items rather than working marginally and using up valuable capacity" Zuckerwise explains.
However, while the shop has moved to using second source suppliers more often than it used to, it still only does so for parts it could make in-house if it had to.
"When you buy from outside suppliers," he says, "you take on a whole different set of issues that revolve around quality and delivery by other people. We've been fortunate, and when we purchase on the outside, we only purchase items that we can actually manufacture ourselves if need be. From time to time we've had to help ourselves out to keep a customer satisfied."
Faster response time is another way to keep customers satisfied. Zuckerwise says updating historical estimates on repeat jobs stored in the system helps Liberty's estimators, "save a significant amount of time." He says the estimators also use data from archived estimates for guidance while they are working on new projects as well. Although the shop's two estimators (one full time and one part time) have not increased the number of estimates they perform in a typical month (approximately 85), Zuckerwise says the accuracy of the data they are using, and the estimates they produce, has improved.
"The number has not increased since the software was installed, but what has increased is the accuracy of the information, and basically the efficacy of the estimating process," he says.
Towards the Future
As the Zuckerwise brothers have already shown with the new procedures and technology that are fueling record profits at Liberty, being third generation job shop owners does not necessarily mean that there is nothing left to learn about manufacturing. The pair share a commitment to ongoing training and education that continues to refine Liberty's operations.
"I find it pretty important. Many times I'll go to a lecture and I'll hear something utterly stupid coming from a lecturer, which really bothers me a great deal. Other times, you get a certain idea and it energizes you," David Zuckerwise says. That was the case with one lecture he attended at a software show in Chicago several years ago. Zuckerwise took the presenter's message to heart when he said, "If there's one thing that you take out of this whole hour that you're going to spend with me, remember this, type it once, work toward that."
Zuckerwise did remember, and has tried to achieve that goal ever since. "It's kind of a motto, and we expect to get there," he says. He hopes to achieve that goal in the future with an interface between MSE and Liberty's shop management system, Infisy Global Shop. "We want to achieve a 'type it once' organization. The more times you enter data, the more opportunities you have for errors to occur. We're getting there, but we're still at a 'type it twice' scenario. We're not really happy about that, but we do see a light at the end of the tunnel, and we expect to reach it."
About Liberty Brass Turning Company, Inc.
Liberty Brass Turning Co., Inc. has been in the business of manufacturing decorative hardware as well as functional industrial components since 1919. It is a screw machine shop serving the lighting, plumbing, decorative hardware and instrument industries. Liberty Brass is located at 38-01 Queens Boulevard, Long Island City, NY, phone 1-800-345-5939, or E-mail: email@example.com. For more information about Liberty Brass go to www.libertybrass.com/.
About Micro Estimating Systems
Micro Estimating Systems, Inc., since 1982, has developed and marketed high precision business tool technology, and is the industry leader in computer-aided process planning (CAPP) and computer-aided estimating systems. In July 1998, Micro Estimating Systems, Inc. became a subsidiary of OnCourse Technologies, Inc. (OCTH) a publicly traded company.
Micro Estimating's engineering software for the machining and fabrication industries encompasses process planning, estimating, and cost analysis. Utilizing proprietary machine tool emulation technology (MTE) the company's software systems furnish extremely precise manufacturing times and costs. For more information about MES go to www.microest.com/index.htm or call (262) 860-0560.
Questions for Analysis and Discussion
Richard W. Herzfeld, TechComm Associates, 5027 W. North Avenue, Milwaukee, WI 53208, provided permission to use this case study on February 5, 2003. Herzfeld's email address is firstname.lastname@example.org. A version of this case was published in Production Machining Magazine, Jan/Feb 2001, p. 48. This case study was posted at DSSResources.COM on April 4, 2003.
Please cite as:
TechComm Associates Staff, "Estimating software yields higher profits at Liberty Brass", Micro Estimating Systems, 2001, at URL DSSResources.COM.
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