A Better Pricing System

I've visited a sizable number of component manufacturers over the years and one thing that I've always found remarkable is the wide range of pricing systems employed. To say, "There's no standard pricing model for the industry" is an understatement. Quite a few managers have expressed feelings ranging from ambivalence to outright embarrassment, many saying "It certainly could be better." The goal of this article is describe what "better" might look like.

Right and Wrong

Let's begin with the assumption that there is no right and wrong pricing system, and rather than debate the merits of competing systems, we'll instead describe what we use these systems for. We’ll also describe some desirable characteristics of any pricing system, and then compare those ideas to our own pricing system to see how they measure up.

Features

Here are the basic things I think a good pricing system would deliver:

·         Tell me what price I should give to the customer (naturally!)

·         Tell me the point below which I would start to lose money. I want to know, "How much 'room' do I have?"

Those are the two big ones, but since I'm aiming high, I'd also like it to do a little more for me:

·         Tell me how long it will take me to build. This would help me know how it will affect other work in production and how quickly I can deliver it.

Other characteristics of a good pricing system

A good pricing system is logical, explainable, understandable, repeatable and consistent.

I don't want a system that "works" but no one knows why - it's just mysterious voodoo. Why? If I don't understand why it's working, I won't know what’s wrong or know how to fix it if it starts 'not working.' A consistent, repeatable system would be one that produces the same results with the same input, and is not dependent on a person or ‘impossible to define’ criteria.

Let’s describe a system that’s the opposite, that might work, but not have these characteristics. The statement “This job seems like it has about a 1.7 difficulty factor” might be used in such a system. But if I showed you that same job a week from now, would you still tell me “it’s a 1.7?” On what basis are you arriving at “1.7” as opposed to “1.6?”

Take the Test

So I'll invite you to apply these ideas to your pricing system and see how you make out.

“In considering my pricing system…”

·         Does it tell me what price to give the customer? (Or does it tell me a number that I have to do more operations to in order to arrive at the price I give the customer?)

·         Does it tell me where my ‘break even’ point is?

·         Does it tell me how long it will take my shop to produce?

·         Given enough time, could I explain it to another person?

·         Is it logical; does it "make sense?"

·         Is it consistent and it is used consistently?

If the answer to any of the above is "No," I submit that "it could be better." We’ll talk on ways to go about finding a better system in future articles.

Presentation Drawings

That “What would we do without it?” web site Wikipedia says a presentation drawing is used “to develop a design idea into a coherent proposal, to communicate ideas and concepts, to convince clients of the merits of a design, (and) to enable a building contractor to construct it...” Presentation Drawings are so much a part of our world, it’s easy to see why they wouldn’t get a lot of attention. But they are important, and it’s worth taking the time to talk about why.

Presentation Drawings as a Form of Communication

I’ve mentioned before the work of Edward Tufte, who has done a lot of research on the communication of information. In his book Beautiful Evidence he shows many examples of documents rich in information, containing little or no “fluff,” and provide the consumer the freedom to take in the information in their own way. One of Tufte’s favorite examples of this type of communication is the basic road map, which he points out is so good in part because “we’ve been perfecting it for several hundred years.” Like a roadmap, presentation drawings can elegantly communicate many different things in the same space.

What’s Being Provided

By showing location and labeling the products to be provided, a presentation drawing communicates what will and will not be provided. Takeoff sheets presented in a tabular format can describe the same information, but they cannot tell a customer ‘at a glance’ what areas will be framed and what, if any, are “by others.” With a quick look a customer can be reassured that the entire structure is going to be framed.

How the Framing Will be Done

The details of “how we are going to do this” are laid bare by the presentation drawing. This enables us to communicate, “We’ve got this figured out, and here is our proof.” It also provides the framer with a “how to” guide for setting the trusses.

Reveal the Assumptions We’ve Made

By creating notes and including section details, we can point out tricky framing situations and expose certain assumptions we’ve made in our framing design. This is crucial in order to avoid delays or misunderstandings during the erection process. It’s worth restating the obvious that pictures are better than words for communicating many things. For example, showing a picture of the cathedral truss spanning a given area is less likely to lead to a “surprise” for the customer than simply writing “volume ceiling” on the layout.

Who We Are

We can spell out what company did this work, who we are, and who you should contact if you have questions. By the quality of our work, we communicate how professional, how meticulous, how helpful we are. Alternately, we can communicate the opposite by presenting sloppy or inconsistent work. If your customer on one job receives a professional, complete presentation drawing on 24” x 36” paper and the next time receives a sloppy, incomplete layout on 8½” x 11”, what are they likely to think about your company? I might think, “Wow, the quality of the work I get from these guys really depends on which designer I get.”

Keep it Clean

“Fluff” is those things that, if we left them out, would not reduce the informational content. Avoid adding things simply to make the layout “pretty.” Color can be used to great effect to make information “stand out,” but it can be also used simply to make things look attractive. Color, like special effects in a PowerPoint presentation, can take attention away from the information. Let the information always have center stage.

Keys to Success

The Presentation Drawing is the most important piece of visual communication we provide with the order. It should be complete, detailed, and consistent. The elements, that is, “What we always include,” need to be understood by all. At a glance we should be able to tell if any one of these ‘essential’ elements is missing. Periodically, the list of elements should be reviewed, and new ones added if experience has shown that their inclusion may prevent problems from repeating themselves. You will inevitably have some people on your staff that are better at this form of visual communication than others. Take their natural abilities and incorporate their “art” into the “science” of creating presentation drawings that communicate the very best about your company to your customers.

Plating Again - Details of Fabrication Tolerance

The first part of this article borrows heavily from the excellent article “Reviewing Metal-Plate-Connected Wood Truss Submittal Packages” by William Bolduc, PE, SE that appeared in ICC eNews. The MiTek information is current through Version 7.2.4 released in May, 2010. Thanks to JM for asking the questions that led to this article.

The strength of trusses is affected significantly by the quality of:

·         the position of the plate on the joint

·         the embedment of the teeth into the wood

·         the quality of the lumber at the contact area under the plate

TPI 1-2002 introduced a new factor and new quality control procedures to better account for real-world conditions and the likely possibility that the items mentioned above will affect the strength of trusses. TPI 1-2007 further clarifies and refines how to use the new factor and quality procedures. Under these codes, each truss manufacturer must now establish “fabrication tolerances” and have the truss design drawings engineered to match the fabrication tolerance used in the manufacturing of trusses.

TPI 1-2002 states that either the fabrication tolerance or the quality control factor (Cq) must be stated on each truss design drawing. TPI 1-2007 requires only the fabrication tolerance be stated on each truss design drawing.

What’s the “right” Fabrication Tolerance?

There is no single correct value. It depends on the quality control procedures used by the truss manufacturer. The fabrication tolerance may be any value from zero to 30 percent (or even higher.) What is important is that the fabrication tolerance shown on the truss design drawings matches (or exceeds) the fabrication tolerance used by the truss manufacturer for their quality control procedures. The third-party agency that audits the quality control procedures used in the truss plant must also agree that the quality procedure matches the fabrication tolerances shown on the truss design drawings.

Typically, truss manufacturers will use a higher tolerance for roof trusses than for floor trusses because of the greater geometric complexity of roof trusses and in recognition of the fact that the roof truss manufacturing process requires placement of the truss plate on the underside of the truss during fabrication. If the fabrication tolerance is less than 20 percent for roof trusses or 11 percent for floor trusses, the TPI 1-2002 (Section 3.2.4.2) requires that the fabricator provide to the approved inspection agency, or through other means, “justification” for the lower fabrication tolerance. ANSI/TPI 1-2007 does not have this requirement.

Fabrication Tolerance in MiTek Software

The TPI QC Fabrication Tolerance % (Fab Tol) in entered directly in the Plate Options section and will only affect plating if TPI 2002 or TPI 2007 are used. “Out of the box” this is set to “20.” To some extent Fab Tol replaces the Plating Tolerance (Plt Tol) setting, which has been around for a long time. Plt Tol, which is entered in 16ths of an inch, literally reduces the effective size of the plate in all directions for calculation purposes. So for example, if you have a Plt Tol of “100” (1”) and you have a 6x10 plate, the program would be use the 6x10 but calculating the plate as if it were a 4x8. Because they do different things, if Fab Tol and Plt Tol are both used, they are usually additive. Here are the square inches of plates I found on a common truss run with various settings. This should not be interpreted as being representative of the overall effect of these controls – just an example of the fact that they operate independently.

Plating Tolerance    Fabrication Tolerance  Square Inches Plate

0                                  0                                  248

4                                  0                                  264

0                                  20                                280

4                                  20                                284

The Incremental Decrease of Fabrication Tol % (Inc Dec) factor gives the program a better chance of plating all joints. Rather than “failing” a joint that cannot meet the desired Fab Tol, the program reduces the Fab Tol for that joint by the value specified in this control. If the program still cannot plate the joint, it reduces the value again by the same amount and so on until a plate works. The bigger the number the quicker the program will find a plate. The smaller the value, the slower the plating routine will run but with a better chance of allowing for some defects at the joint. If the Fab Tol is reduced by this method, a note will appear on the Engineering Drawing specifying the reduced Fabrication Tolerance for that joint. The TPI QC Plate Rotational Tolerance (degrees) of 10 degrees is specified in the TPI 2002 and 2007 codes and this is the program default. You can use a different value (than 10 degrees) based on your Quality Assurance program. The smaller this value, the smaller the plates, but for any value below 10 a note specifying the Rotational Tolerance will be shown on the Engineering Drawing. If the value is left at 10 degrees, no note is printed.