Precision engineering · Manufacturing
Finance for precision engineering firms that quote by the part
A precision engineering firm wins on the quote and loses on the job it under-priced. We cost each part from the machine hours, tooling and rejection it actually consumed. The next quote is then built on evidence rather than on last year's hourly rate.
In one paragraph
CNC machining, turned-parts, tool-room and precision-component firms sell machine time, one drawing at a time. Most turn over ₹10–200 crore, and their customers send a drawing and expect a price within days. Every job is slightly different, so a single shop-floor rate hides which parts make money and which quietly lose it. The owner or managing director usually prices the work, often with the finance head.
Managing director or owner, often with the finance head
The economics
How the money moves in this trade
A precision shop sells machine time. The cost of a part is the hours it spent on each machine, the tooling it wore out, the material it consumed and the share rejected or reworked. A quote is usually built from a blended hourly rate and an estimated cycle time. Once the job is done, actual cycle time, set-up time and rejection are rarely compared with the estimate.
Customers are often OEMs or tier-one suppliers. They set payment terms, ask for annual price reductions and hold material on consignment or send it for job work. That stretches working capital while it squeezes the margin. Both effects stay invisible until cash runs short.
The problem
Where the numbers usually break down
One hourly rate for every machine
A five-axis machining centre and a manual lathe are charged at the same blended rate, so complex parts are under-priced and simple ones over-priced.
Set-up time is never costed
Short runs carry the same set-up as long ones. When set-up is not recorded against the job, small orders look profitable when they are not.
Rejection sits in a general expense line
Scrapped and reworked parts are written off in bulk, so nobody can see which part number or which customer's tolerance is causing them.
Job-work material is not reconciled
Material received from customers for machining, and material sent out for plating or heat treatment, is tracked on paper and drifts away from the books.
Price reductions are accepted without a cost basis
An annual price-down request is agreed or refused on instinct, because there is no part-level cost to test it against.
What we do
The work, and the result each part produces
Machine-hour rates by machine group
Separate rates for each class of machine, built from depreciation, power, maintenance, operator cost and actual utilisation.
Quotes reflect the machines a part actually uses.
Job costing from the shop-floor record
Actual cycle time, set-up time, tooling and material booked against each job and compared with the quoted estimate.
Every finished job shows whether it made the margin it was priced at.
Rejection and rework costed by part
Scrap and rework recorded in quantity and value against the part number, customer and operation that caused it.
Quality loss becomes a cost someone owns.
Job-work and consignment reconciliation
Material in from customers and out to subcontractors tracked at both ends, with the GST job-work return kept in step.
Stock at other people's premises agrees with the books.
Customer and part profitability
Contribution by customer and by part family, after rejection, freight and payment terms.
Price-down negotiations start from a number, not a feeling.
Working-capital view
Receivables, inventory and work in progress tracked against customer payment terms, with the cash cycle reported monthly.
A cash squeeze is visible before it arrives.
Where we start
The first steps of an engagement
Job cards and machine logs
We ask for recent job cards, machine logs, rejection notes, the quotation file and the fixed-asset register. We also look at how jobs are booked in your accounting system today.
Quoted against actual on recent jobs
For a sample of finished jobs, we compare quoted cycle time, set-up and scrap with what the shop-floor record shows.
Rates split by machine group
Machine-hour rates are rebuilt for each class of machine, and set-up time and rejection start being booked against the job number.
A job-margin report
The first report shows quoted and actual cost side by side for each sampled job, with the gap split into cycle time, set-up, tooling and rejection.
How it is measured
The reports the work is judged on
Each is recorded as a baseline before the work starts, so later reports have an honest comparison.
- Quoted versus actual cost, by job
- Machine utilisation by machine group
- Rejection and rework cost by part and customer
- Contribution by customer and part family
- Job-work stock reconciled at both ends
- Cash conversion cycle, month by month
Who it suits
Written for, and not the right fit for
- You need your annual audit or tax-audit report signed — an independently engaged CA signs those, though our job-work and stock reconciliations feed into them.
- You want a new ERP selected and implemented; we work inside the systems you already run.
- CNC machining, turned-parts and tool-room firms supplying OEMs or tier-one customers.
- Owner-run firms that have grown past what the accountant's monthly entries can explain.
- Firms preparing for a customer audit, a bank renewal or a new machine investment.
Cities where this trade concentrates
Services
Services this work draws on
Costing and profitability
What each product, line and customer really contributes.
Explore service ↗Outsourced accounting
Your books kept current and reconciled, closed to a published calendar.
Explore service ↗Internal controls and risk
Controls sized to your business, documented and actually tested.
Explore service ↗MIS and financial planning
Reporting built around the questions you actually need answered.
Explore service ↗Every other service, also available in this trade
Common questions
Questions owners in this trade ask
How should a CNC shop set machine-hour rates?
By machine group rather than as one blended figure. A single rate is fine until your machines differ a lot in cost. Splitting it usually shows that complex parts have been under-priced for years, and it's the complex parts that customers are happiest to give you.
Does job costing need extra paperwork on the shop floor?
A little. Most of what's needed — job cards, machine logs, rejection notes — already exists. The work is in getting it booked against the job consistently, not in creating new paperwork.
How should we respond to an OEM price-down request?
Start from part-level cost. With it in hand you can show which reductions are possible, which would make a part loss-making, and what change in volume or terms would justify them.
Explore further