In discussions with a number of wood product manufacturers, both here and across the border, I have noticed a significant change in the Bid-Close ratio over the past few months. For those who don’t know, this ratio is comprised of the number of quotes a manufacturer bids on in relation to the jobs that they actually land. If a company bids on five jobs and they land one, they have a Bid–Close ratio of 20%.This ratio acts as a barometer to the market which is a good measurement to the relative success manufacturers have in signing sales agreements.
The general rule of thumb for the wood industry is the higher up the value-added chain you go, the greater the bid-to-close ratio becomes. For example, finished product manufacturers tend to have a higher bid-to-close ratio than do reman operations often due to the time, complexity, and expertise of bidding on the project. The more time and effort spent on the bid commonly leads to a higher percentage chance of landing the job.
With the downturn in the market locally, and the economic mess south of the border the Bid–Close ratio has changed dramatically. For example, Architectural millwork manufacturers who would normally work on a Bid–Close ratio of between 45% to 50% are now working on a 20% ratio. Engineered wood product manufacturers who are usually even higher (60+%) are hovering around the 23% to 28% range.
What to make of this? Well, almost all the manufacturers that I have spoken to have been extremely busy on the bid side. Comments that I typically heard are “I’ve never been busier quoting on jobs than I am now” . It also seems that buyers are doing their due diligence and shopping their projects to a greater number of suppliers than ever before, some asking for quotes months before the time that manufacturers are normally involved. I’ve also heard that some manufacturers are taking on projects with extremely thin margins in order to just stay busy.
As the markets gradually recover I expect the Bid–Close ratio will likely follow suit and return to normal. For the old adage “that were not in the business for the practice” still holds true today as it did before this downturn. Manufacturers still need to turn a profit in order to stay in business.