With the right tools… it’s easy to estimate parts at their true value.
Begin by reviewing the part(s) design and by selecting a method for comparing the cost — at the design level. There are several software programs on the market. Some compare part features while other estimating tools enable algorithmic approaches to should costing. Another well-known and widely accepted estimating practice is parametric estimating. This method allows time and costs to be calculated based on averages of similar parts or part features. Depending on the software program, these approaches enable comparison shopping providing estimators and/or design engineers a cost-based measuring stick.
Many manufacturing companies issue RFQs (request for quotes) and send (3) or more RFQs to their suppliers hoping to get a lower price. With all things being equal, assuming the part processing work centers are optimized for the selected manufacturing process, this seems like it might make sense — on the surface. But consider this… many suppliers have a good idea what an OEM (original equipment manufacturer) will accept – based on historical purchasing patterns. Therefore, as this has occurred for decades, they (suppliers) frequently guess at what they think the customer (OEMs) will pay, and not so much for what the parts are going to cost.
While it may be the best price for that process…
It doesn’t mean that it’s the best process for that part!
We’ve witnessed where the same casting is quoted with 6 different prices ranging from $60 to $395. Price differences can depend largely on the industry of the company requesting the quote. This scenario can work and has…but typically with time limits. Increasingly, OEMs continue to invest in new cost estimating solutions. They are discovering lower costs associated with the parts they have been purchasing. As OEMs use costing tools and identify “defendable” cost benchmarks, the current suppliers issuing overpriced quotes may quickly be passed over and soon forgotten.
For example, suppliers could be looking at a profit margin with only 2-5 percent — in order to get their foot in the OEMs door. Other times, suppliers could specify 100-1000 per cent and more – when they think they can get away with it. In this case, if the job is awarded, suppliers shouldn’t be quick to think they’ve won a long-term customer. Once the OEMs product costing team does a quality check — in preparation for the next quote –the OEM may identify they are grossly “overcharged” and that may be the last request-for-quote that supplier ever gets.
Don’t get caught up in this game.
Whether you are a supplier or an OEM, determine the true [current] worth of the part. Use a program that allows quick updates and comparisons. Attain a number, your team [as a supplier] can support and defend or for the customers [OEM] team provides a number that can be agreed upon quickly, reducing the extra “costly” review time or to identify a lower cost method of producing the part.
The tool: SOFTWARE
There are several software companies that focus on estimating manufactured part costs. Estimators can determine what the part or a particular manufacturing process will cost beginning with the time it takes to perform the manufacturing processes. They calculate estimates based on the setup, manufacturing and assembly time followed by adding predetermined rates and standards to determine the cost and selling price. One approach is by mimicking a suppliers shop; another is by using a virtual supplier specifying the most popular work centers, and other high-tech options, in an optimized (virtual shop) environment.
Database designed software is prime for rapid information retrieval. Data access is immediate and provides for long-term analysis, calculation and updates. This incorporates the ability to utilize all of the necessary cost standards and manufacturing data required to get the [right] answer without reinventing the wheel for each part or manufacturing process.
Some packages include cost modeling that enables the selection of part sizes and features for quick estimates. One example would be estimating a complex tool box assembly with 27 drawers, inserts, handles, slides, bearings, etc. How would you like to estimate this assembly in under a minute, with the ability to create instant reports and compare manufacturing options?
Cost Estimating software topics, comments, questions, or suggestions for this communication or future articles are always welcome? Please let me know… Jay Snow, Marketing Manager, Jay.firstname.lastname@example.org, 800 644-4318, www.MTISystems.com
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