Thanks everyone for joining today my name is Jeff Halonen CEO of Steelhead Technologies and in this webinar we are going to review how to track your margins in your job shop and also some of the theory around why tracking margins is important and what happens if you do or or do not track those margins in your job shop and then we'll briefly go over the different modes of job costing inside of Steelhead and and inside of Job Shop specifically metal finishing job
shops so getting started it's really a story what we've seen over the years after being in many hundreds of shops is a story of two honestly different shops and we call them shop a and Shop B types so in a shop B type how they kind of view the world as they they win jobs and that's either through expansion of existing customers or you know sending out quotes however they they get their new business they they win a job and they run that job and then they kind of start a cycle of continually running
the jobs that they win and a little bit of horse blinders and and just kind of just keep on doing a lot of activity and just keep on building that Topline revenue and and that's kind of it that's kind of the end of the story however there's another type of shop called shop a that we really love to partner with these kind of shops and what they do is they win the job through the same types of channels that shop B will win a job and they'll run the job just the same however they'll stop at the end
of every single time they run that job and they'll ask the simple question did I make money on that job and if the answer is yes then and only then they'll just run that job in which case they look a lot like shot B however in the situations when the answer answer is no they'll stop and and think so they might reprice it it could be a pricing issue it could be a a contract issue it could be a equipment issue a training issue could be a number of issues and they will attempt to remedy that and assuming
they had to reprice it or ask a customer for a batch size change or something like that if they still win the job then it's a win-win and they they keep they continue to run jobs the really interesting H thing happens with when Chae runs this process and fixes the issue sometimes through like a price increase or or something else and then that customer decides not to give Shae the job there they're going to give it to a shot B so over time those that are blindly running work are going to aggregate
more and more of the the jobs that are out there and it it'll continue to drag on on the performance of the business because as you can see shop B has no filtering mechanism so they'll just continue to accumulate the lowest quality jobs where shop a is keeping their their kitchen in continual order so the long-term effects of this is that the the profits generated by having a a a high concentration of profitable work will enable investments in capital systems sales your people and less stress and
more prosperity for the entire company and for honestly your customers as well and Shop B this this tends to be a little more stressful situation so there's a lot of cost cutting cost sensitivity on on everything low quality Talent we're basically competing for the the lowest paid labor in our labor markets because we're we're doing everything we can to essentially stay afloat with by cutting cost production quality issues because we're not investing in capital little or no growth so we see businesses
going essentially sideways for Years or or sometimes much longer than that and and a continual sense of stress U and insecurity in the business and and you know we we hear stories of we went from $1 million of top time Revenue to $5 million top line revenue and that's very exciting but the only challenge is we're actually losing money so it's it's Top Line is is important but there's a lot of really important things that need to come with it so a quick example of and A shop in the words of of a a
Steelhead customer here Steelhead proved that for a certain part number we lose money if we run 50 We Run 100 we hit our Target margin I took this information to the customer and now they only send this part number in quantities of 100 or greater this keeps their price down and our margins up a true win-win so this is Ken over at at DNK powder so this is an example of an aop running a job through diagnosing a problem and the problem is essentially that this particular job the way it's been processed
it doesn't work for our business it's it's not pushing our business forward it's actually pulling our business backwards so they actually approach the customer in this particular one it's not always about increasing the price they went back and asked the customer hey if you can send them in larger batch sizes that has a real impact on our economics just based on the physics of our manufacturing environment and the customer was more than happy to make that accommodation on the batch sizes and were
able to keep those lower prices and and keep those production numbers up as well and avoid that kind of money losing situation so a really exciting opportunity here and if the customer said no we want to send thement at that low price and in low batches there's a decent chance they would have taken it across town and then a a type B shop would have accepted that work and just ran it forever potentially even though was it was a money losing situation so in this case it was it was resolved and it
was a there was no no one was a loser is a win-win as as Ken says here but like there are situations where we where we hear someone saying hey you know we studied it and studied it and it's $28 what the price has to be and and they got a quote for 25 across town and it's like all right well I guess kind of let them have it because that's that's going to be a very challenging number to to run a run a business on so for a finishing Job Shop to step back because obviously here at steelhead we spent
a ton of energy on digitizing the production flow we we talk about the physics all the time and and to effectively do job costing or tracking margins it takes an immense amount of traceability and digitization of the production flow and how we think about surface finishing job shops essentially for main modes so the first is a single part task so this is something like masking or inspecting or packaging a quick story on packaging this is one that we see as continually underestimated unless you have
the data we instances where the cost for packaging exceeded the cost of running the rest of the job combined and so there can be really profound insights on some of the Single part task value ad steps bat processing so if you're doing things like painting or powder coating and you are racking multiple Parts together or even anodizing heat trting any batch type of environment where you have multiple part numbers multiple customers multiple work orders being processed in a group then we want to create
special accommodations for that so we're accurately doing our cost counting in that environment the next is automatic lines so these are conveyor rack barrels Carousel type lines where we're more looking at the production capacity of that piece of Capital Equipment and the variable labor attached to that and basically each part that's coming through how much of that production capacity is being being occupied and the last is manual dip line so this is environments like Anodizing in and passation
or or or plating where things are are very manually put through many different sequences of steps there's nothing like physically unique about the actually dipping Parts through other than the fact that the transaction time so the the time between value ad steps are are highly compressed so stead has a A specialized scanner tool to adopt that so for this webinar a time of recording of this master class we do not have job costing on the manual dip lines it's coming in in the coming weeks and months
here but for the first three here that's what we'll be spending the rest of this this master class on is how that works inside a steelhead there so before we jump over to Steelhead and talk about the tool itself first the question let's say we're shop a or a type a shop and we record all the data we know how long each part is in each value at station we we're completing inventory we know if we're making money or not why is that useful what we do with it so the first is we identify which parts processes
customers and team members deliver the bottom line results that drive the business we can Trend business performance over time we've we've seen a lot of variability where we might even quote a job and a expected time to do something like masking is 3 minutes but the variability week for week month for month can range anywhere from 15 minutes to 3 minutes and and that's because in this particular instance because a different operator or a different person was doing that task so it's it's it's it's
a good start to establish a nominal Baseline to do a Time study every now and then but there are a lot of things that change over time whether it's your your team or or who's doing the task or the cleansiness of your your customers Parts you know any chemical changeovers that are driving more rework things like that it's it's a continual game of of of maintaining Peak Performance in a Job Shop making investment decisions so of course if you have visit ility on what jobs or processes are are winners
and and and which ones are not winners that's going to drive Capital decisions as you look at a 100,000 or or $5 million piece of Capital Equipment to deliver more value to the market your profitability the profitability of your your business is going to be a key component to that that [Music] decision the fourth one here is to determine your ideal customers and what type of work that you're really good at and pursue these with intention ity we see this a lot over the life cycle of a job shop where
at the beginning you kind of take any old work anyone who sends you Parts you do it all and then you become more and more particular over time because you start to understand what your particular Capital Equipment your people are are good at what what your industry needs and U you know having the underlying profitability data can be a driving force in in some of those decisions and then you move into a stance where you go and actually seek that specific type of work so you know it work works really
well with your your capital structure your people and things of that nature and of course making day-to-day business decisions on on pricing lot charges xate fees and other other other business fees and and pricing and and Commercial commercial structure for the business all right so jumping over to steelhead here for those who who've never seen steelhead it's a plan operating system cloud based built for job shops Parts in Parts out adding value ad in highly chaotic environments fast pace and again
how do we how do we digitize manufacturing plant in that environment so I've pulled up a couple examples here the first one is what we referred to in the previous slides as the single person value ad step so if I'm just this is a workboard for those who haven't seen this this is the the simplified user interface that The Operators are typically using either on tablet or computer sometimes even a phone out the floor and what we want to do here is we're doing our our masking task so I'm going to take
this task here and step it into ready to mask and plug into a mask and plug you can see these parts are on quality hold but we'll we'll ignore that for now and let's say we're working on these parts for for plugging and masking so as I've stepped from ready to mask and plug into mask and plug it's going to automatically start that labor timer on there and from this work part screen we can also deplete it inventory you can see I've depleted some inventory there already I'll deplete another pound
of material here so we're starting to roll in our our inventory cost we're tracking our our time and station here U and then of course operator instructions and comments and all of the other features that that we enjoy from this from the screen so if I'm done if I'm the operator I'm done masking the parts I can simply click move parts and from here it'll automatically grab my time segment or I can edit this if I you know made an error of some sort let me pop up that work order real quick so I'll
go ahead and move these parts here and I'll change it to 10 minutes and then we can jump over to and you can see how it dropped off off the workboard so the workboard are designed to feed information and provide a two-way interface to digitize production flow to folks that are out in the floor in this case we're focusing on job costing and in in value steps such as masking plugging inspection packaging things like that so if I jump over to that work order you can see that the parts have have gone
from oh just going to refresh real quick from masking and plugging to ready for racking so they've come in and out of the masking step and they're on to the next person so if I go back and and look at the margins updating in real time I can see our revenue on this particular order our labor cost our station operation cost so our labor cost reflects the labor rate of each user so if your user is getting paid $14 an hour or $24 an hour it'll be multiplied by the amount of time that they're building
against that job and then our station labor rate is for this is more for like large automated lines where you have operators clocking into a piece of Capital Equipment and then jobs are moving through that piece of Capital Equipment incurring that variable labor cost and then station operation cost this is built to handle kind of hourly overhead type costs like natural gas electricity so we can estimate those costs and then based on how much based on the part that are in that station for that period
of time we can roll that cost out inventory cost is is just the the cost of inventory that we've completed on this order our total cost is obviously the accumulation of all that and then the gross profits the Delta there so but we also can Dr Drill in on a per part number basis and then you know on a on a per station basis so we can see that masking plugging has incurred $68 a cost here and we can continue to plug and drive in ever deeper and basically every time segment allows us to drill deeper
and deeper into that part and then if I actually pop open this part number we can look at our our margins on a part number basis okay it looks like we don't have any completed here but basically on the part number U margin we can drill in on a per station per work order basis on the part number level as well so we have that traceability so our coding team can go back and evaluate the how how well that part fits for for our business so that's the first production mode and and really want to focus
this webinar or or this this master class on the interface how the software works with the folks out on the floor so we've we've talked about the four different production modes talked about individual operator value ad batch manufacturing Auto lines and then scanner lines and we're going to cover those first three so jumping to the second one here on on batch manufacturing so again this is an environment where we take multiple part numbers multiple work orders multiple customers even and we process
the parts in a batch and we want to either capture information such as specification inventory depletion and job costing to that batch so in this case we have a racking node and we can see the parts that are compatible to be racking it'll the algorithm will actually look and see from a racking node to an unracking node what parts have a compatible treatments between the racking and unracking node so in this case we're going to go ahead and select these parts to put these on a rack and we can select
the rack that we' we'd like to use here so I'm going to use a standard rack three and then we can also change the percentage of of Parts how they affect the rack so if you know this is 90 and and 10 it'll take a gas based on on part count there so it'll actually break out the the job costing based on the percentage that we've set ahead of time if there's a if you have large parts and small parts and the the part quantity isn't reflective of of the actual percentage so after we have these parts racked
the other Advantage is we can move many parts at a time with just a click so or or or tap rather on a tablet what we've seen in some shops is you know moving 30 paper travel Travelers at a time to go from step step to step so by digitally racking these we can simply click submit and and step those parts and that entire rack's been moved onto the next stage here so I jump over to the next workboard in this case where we have an anodizing line set up here so we have our standard rack three so we're
able to take this from staging we're going to go ahead and move this onto load and now we have our rack here and as you can see it's much like working an individual part we can run timers on here we can deplete inventory we can view instructions we can measure capture specification values and do all the standard information that we can on a rack or on a on a part rather except it's happening on the rack so again you can see how we have the the time broken out here that we were allowed to to edit
and we can submit so that's how we handle a batch manufacturing and there's a lot of math on the back end to to roll up those those margins there so jumping over to the third mode of of of manufacturing and job Shops and and how to track margins on on that this is for auto line so if you're continually racking and loading Parts on the line there might be 5 10 30 40 people working this piece of equipment and and loading Parts on in this case it's very burdensome administratively to take a part and
and load that part and then load another part or load this part number and then that part number so job costing gets extremely difficult especially if you take into consideration the fact that the duration of the parts on the line can be anywhere from you know a couple minutes to an hour to 2 hours depending on the the size and nature of the line and if you load 10 parts and it takes 30 seconds you don't necessarily want to penalize it for being on the line for those 30 seconds plus 2 hours plus
30 seconds to unload it you're going to want to find a more kind of reasonable and representative way to allocate cost otherwise that small batch size is going to be absolutely hammered if to just do your calculations based on Time online so what we like to do with what we call Redline job costing is to essentially have an imaginary line at the loading or a key value ad stuff like painting or unloading you just pick one per line and essentially have one tablet that enables documentation what's happening
on the line in real time so we've been loading this part for 1 hour 20 minutes here but let's say we wanted to run some split production here I can go ahead and click this time we're here and we can run these parts in parallel and then we can also change the balance so let's say we're running 50/50 on these parts here we can now split that to to 50/50 so now we're we're taking essentially the hourly cost of consuming the production capacity that Capital Equipment and spreading it across multiple
part numbers so if we're loading a large part and then small parts in between for ergonomic reasons or sometimes the the manufacturing equipment itself can only put out a certain amount of amperage per square foot or something like that and we need to actually modulate what part geometers load on the line sometimes it has to do with rack density it could be ergonomics could be we didn't have enough people showing up today so we have to load big Parts whatever it is very common to see a mix of Parts
being loaded in at the same time and from here if we're you know if we're done with the the fastel parts we can go ahead and and step those and now those parts are done with in this case racking and then the painting instructions would still see on their SuperCard all those instructions on how to process that part so we we do have an ability to see the the time here so if I do the last last two hours you can see it's breaking out the the time so this is taking into account the station rate of that
that line so that Capital Equipment has a natural gas and electricity rate and other overhead chemical weight maintenance Wastewater associated with that let's say you know $500 or $2,000 an hour and then we have the variable labor rate so as folks are clocking in and out of the line the variable labor rate is is being applied to that piece of Capital Equipment and then as Parts being processed through you know Redline job costing method is capturing the production consumption of those parts we're
essentially penalizing those parts with with a cost so it's it's absolutely not a perfect cost accounting but in the highly chaotic automated automated Carousel and and batch conveyor system manufacturing environment it's it's an excellent approximation and it it does give you a degree of precision on your orders so anytime we're looking at at Job costing we do have to look at at essentially two things one is accuracy and precision so if we are are using a system and our assumptions aren't quite
dialed in yet we might be in a situation where we have just Precision but not accuracy but that's still really beneficial because you can compare jobs one to another or runs one to another and and then you over time as you narrow in your assumptions you can arrive at both accuracy and and precision which which is when you're really become dangerous as far as fine-tuning your production environment I'm just going to walk this back and then pop up in this work order so we can take a quick look at
what margins look like on on a job that's going through the redline job costing so as you can see here much the same as the other one we have our our Revenue we have all of our other types of costs but here we have our station operation cost it's quite low in this in this situation not very realistic but every time that we change the assumptions based on on that based on our production we were we were able to let me see the other one here we're able to create essentially line items per Red Line
we don't have that one this one's got red line 35 seconds right I had a long segment in there to get a nice looking number in there but we'll have to look at this 972 loss here but Redline job costing essentially takes that operation rate in this case we have 575 an hour and penalizes against again how much production capacity is being consumed by that that part being processed in that particular instance and labor would be folks that are logged into that line so very similar methodology where we're
tracking our cost and and rolling it up into a a margin and we're tracking at the part number level at the work order level and at the purchase order level as well which is really important because if we are receiving for for example rework back we may choose to create another work order on the on the sales order the same the same Po and not charge for so that's a situation where we're going to be incurring additional cost and we want we want that to be reflected in the margins there at the sales order
level