The concept of “shop rate” is interesting, because you make the most money off of your shop rate when you beat it. A job shop machining a particular part may try a new tool, machine or procedure that lets the shop make the part more efficiently. The machine time and/or the amount of overhead required for the part is reduced. However, the price was set according to the previous process. That means the shop’s profit margin on the part increases—for a little while.
Of course, other shops are also making changes. Competing shops may even implement the very same change as your shop. There are few “trade secrets.” Plenty of shops understand beneficial technologies before they put them to use. First come the aggressive implementers, then more users follow, then demand increases to the point that knowledgeable vendors appear who can help a much larger number of shops get started. Eventually, everyone’s quoted price reflects the technology improvement. This march from leading edge to standard practice is inevitable, and it should affect the way shops think about investment.
One conclusion of this march is that the investment has to occur. Your current equipment and procedures are sources of income but they are not sources of increase. As other shops get better, the income from your current process declines.
A second conclusion is that the investment has to be ongoing. Soon, your next step up in capability or efficiency will also cease to be a source of increase. Other shops will catch on and catch up. You will need to step up again and again.
However, you already knew both of these conclusions.
A final conclusion is this: The most important area of investment may not be what you think. As mentioned, many shops understand beneficial technologies before they put them to use. What holds them back? Not the technologies, but uncertainty.
Yet other shops do improve. These shops’ leaders don’t face any less uncertainty. What they do have is enough love in what they do that the uncertainty is not so weighty. They have enough joy or peace to overshadow the worries that the next step might not work out. Thus, their processes are more free to keep on advancing.
What is the source of this love, joy and peace in your own work and life? Whatever it is, go to this source—try investing there. See if beating your shop rate doesn’t flow from this commitment as much as from any particular process change.