BF Double Check

In previous articles we've talked about the characteristics of the good pricing system. This article assumes we are using a less-than-perfect pricing method and would welcome a way to “check” ourselves on price. The method we’ll talk about here is not intended to be the “last word” in pricing, but it is simple, and doesn't require any time studies. The goal is, once again, to consider all of our costs when pricing a job.

Based on Board Footage

Board footage is the most common measurement applied to truss work, and it’s easy to understand why. In one nice, easy to understand number, the design software can provide us with an exact measure of the volume of wood being used; wood – the “main ingredient” in building a truss. Since we know, or have a pretty good idea of, the cost per BF of the lumber, we are off the a good start on estimating our job cost. The BF Double Check works with other costs in the same way – relating them to the board footage of the job.

Our Example Job

Our example job is 5,000 BF. We are going to estimate the costs associated with this job by following the material from the time it comes on the property as uncut bunks of lumber, until it leaves as finished product – ready for use in the field.

With lumber, we usually have a pretty good sense of our current average “cost per BF.” Let’s say that’s $350 per 1000 BF. Will put that into our table and work from that to see that in terms of dollars on our 5000 BF job.

Once through the gate, the lumber needs to be unloaded. We estimate how long unloading the truck and storing the material takes, and how many people are involved. If we think that amounts to $200, then we divide that cost by the BF of the material unloaded (let’s say 20,000 pounds.) This will be the only factor where we use the BF of something other than the job to calculate the BF cost.

Next we have to pick the material, bring it to the saw, cut the lumber, stack it and then stage it (unless it is going directly to the line.) Calculate how many people and how long each operation takes and then come up with a dollar cost estimate of cutting this job. For this job, let’s say we estimate that will amount to $685.

The plate cost varies from truss to truss, but like the price of lumber, you probably have some sense of your overall plate cost per BF. For our example, we’ll say it is $0.09 per BF.

Fabrication is the single biggest labor component of cost. Roughly estimate the time and number of workers it will take to complete the task of building and stacking the trusses, and then turn that into dollars. Doing this on several different jobs may get you thinking about how much your production per BF can vary. For a typical day, week or month your cost per BF in the plant may be fairly consistent. But from job to job, how much can it vary? 10%? $30%? 80%? It would be good to know what the difference in your plant between a “hard job” and an “easy job” is. For our example job, we’ll say it’s $1500, which works out to $0.30 per BF.

We then estimate the time and expense to load the truck, making sure that things like fork lift costs are accounted for.

We know how far and how many loads our job will require and use our standard “cost per mile” figure to come up with a cost for delivery, and then convert that into “cost per BF.”

Lastly will be the estimate for the design staff, sales, and management – the overhead. You might have to look into the books for this one, but if you know how much your “non-direct labor” costs are per month, and if you divide those by the amount of BF you produce in a typical month, you have the number you need here.

Summing Up

The point of this is to keep things simple, but also to “keep it real” in the sense of accounting for all of these very real costs. With a pencil and paper and a little thought, you could come up with rational estimates for all of these costs for your plant. And if you go through this exercise, what do you have then? Possibly your break-even point. Notice we have not added anything for margin here. If you’ve thoughtfully estimated these costs, you are probably pretty close to seeing “how low you can go” and NOT lose money. As I said at the beginning, this isn’t the last word on pricing, but it might be a good “double check” of your current pricing system.

It's Just About Everywhere

When I started out as a radial arm saw operator 30 years ago, I recall being given a hammer to use to nail the “stops” to my wood bench when I was cutting several pieces of the same length. It wasn’t anything special, just your typical hardware store hammer, and it was all I needed. However, it didn’t take too long to notice that all the guys who worked the tables, the guys who built trusses for a living, used another kind of hammer. Thus began my fascination with the Estwing.

A Family Business

Estwing was founded in 1923 by Ernest Estwing, a Swedish immigrant. He patented the one-piece design that was much safer than other hammers on the market. The business started slowly because Estwing’s hammers were twice as expensive ($2) as other hammers. An ad placed in Carpenter Magazine in 1925 received an encouraging response, prompting Estwing to begin his first factory. Estwing is still largely a family business based in Rockford, Illinois.

The Preferred Hammer of the Truss Builder

Specifically, I’m referring to a product that the Estwing company calls a Framing Hammer, which is a subset of their Nailing Hammer product line. I’ve been looking through the photos I have of guys building trusses and I haven’t found any (yet) that don’t show the builder wielding an Estwing.

But Which One?

For the truss builder ready to move up to the truss builder’s hammer of choice, the problem is, “Which one?” The Nailing Hammer comes in 20, 22, 24, 28, and 30 oz. weights. It also comes in 13.5” and 16” lengths, and “milled” (waffle) or smooth face. Although the 13.5” works fine, I think more “pro” truss builders use the 16”, and no doubt, if you can handle it, the 16” can generate more “head speed.” Weight is subjective, like the weight of the bat you use for hitting a baseball. It’s whatever feels right for you. And I would always choose the waffle face – it just seems to me that it “grabs” the plate better when I am striking it, although admittedly I have no evidence to back that up!

What’s the appeal?

Why would one model outsell all the others for building trusses? Almost certainly it is the lightweight, one-piece design, allowing for higher head speed, and the ‘shock and vibration-reducing’ grip. This characteristic “blue grip” has been around a long time, and was improved significantly in 2001.

Until I visited the web site I was unaware of the Hammertooth™ model, which looks like an excellent tool to use if you are building wall panels.

Safety

The Estwing web site emphasizes the importance of eye protection, citing OSHA regulation 29 CFR 1910.133 that requires the use of eye protection not only for workers using striking tools, but for workers in the immediate working area. There is a warning to never strike two heads together, and the site encourages discarding hammers with damaged heads, claws, or handles.

A Method of Attributing Overhead

In an earlier article I described what a better pricing model might look like and in another defined in very general terms what “overhead” means within a component manufacturing company. Suggesting a way to put the two together will be the purpose of this article.

In my Technical Support days I used to help explain to component manufacturers how the costing part of the design software worked. Setting up the materials with their proper costs was straightforward, and I could get through the labor estimation with its “setup” and “run” factors without much of a problem. With overhead, the program seemed to want a percentage of something – of material or sale price. We’ll go a different direction and describe a method of attributing overhead based on time.

Two Bins

Let’s say we’ve looked at our business and have put our costs into two large bins. Into the ”direct” bin we’ve put the shop labor, everything that goes into the actual manufacturing process. Into the “overhead” bin we’ve put everything else: rent, office salaries, taxes, and a whole lot more. The important thing is that every cost be accounted for in one of the two bins. The overhead is then added up and converted into a total dollar figure “per month.” Let’s say our figure adds up to $52,000 per month.

Total Direct Hours

Next, we look at the production workforce; everyone who helps us produce deliverable product. Let’s say that’s 18 people, including people who saw, catch, move, build, and stack. Now we’ll multiply the number of people by the number of hours we are working. If we are not too busy and not working overtime, that would be 8 hours x 18 people x 22 working days per month = 3168 hours per month. We need to  double check this against the payroll to make sure that that’s about the total number of hours we are actually paying people.

A Labor Model that Estimates Time

Here is the hardest part. We want to create a labor estimating routine that accounts for every part of the direct labor that is being used, and we want it to come very close to predicting what labor we end up actually using. At the end of the month (week, day,) we want the total hours that we thought we would use up (using our labor model) to add up to the hours that we will actually be paying people for. This will be challenging at first if we have been using a very simple method to estimate labor costs, but it is far from impossible. We begin by looking at each activity that people are involved with and provide our initial “best guess” as to the time that the activity will take “per” something – per piece or per truss or per plate. We then apply it to all the jobs we did in a given day or week and see how it compares to the “real” time. We adjust, refine, and through the process learn more about our how our people are actually working. We won’t actually use this labor model until we are confident that can reasonably accurately predict our real production on every job, and very accurately predict our real production over many jobs. Nothing good comes easy and this is where the real work – and reward – of this process will come from.

The Endgame and the Big Payoff

Back to overhead. You’ve calculated that your overhead is currently $52,000 per month and your direct hours add up to 3168. That works out to an overhead of $16.41 per direct labor hour. Now, when calculating the cost of a job you will tally the materials, direct labor, and, using the formula we’ve just created, add an overhead cost equal to $16.41 x the number of direct labor dollars that job is expected to consume. If you estimate the job will consume 100 hours of that precious 3168 hours you have to build things with every month, the job needs to “pay back” $1641.00 to pay for its share of the overhead. You’ve identified your break-even point (congratulations!) and with that comes a lot of power to intelligently decide what jobs to take and which to let go.