Cool Tools for Purchasing Online, May 2006
Many moons before the birth of the Internet, Manufacturer’s Technology, Inc. was founded as a purveyor of job-shop quotation software. This PC-based solutions provider developed applications for the metalworking supplier marketplace, helping job shops price out build-to-specification work.
When the American economy softened and global competition intensified in 2000, multiple OEMs approached this company, which now goes by MTI Systems, with interest in its solutions. “Traditional methods of cost reduction weren’t working for them anymore,” said David LaJoie, vice president of sales for the company. “They were curious about the potential of bottoms-up cost analysis as an enhancement to their supplier negotiation process,” he said.
The Massachusetts software company happily complied, creating Costimator OEM, so OEMs could enter supplier discussions armed with accurate should-cost figures. The solution has performed so well for OEMs since then that Costimator OEM sales now account for over half of MTI’s revenues.
Here’s how Costimator OEM costs out a part. The starting point is a production lot size, a material spec and the knowledge of how a part or assembly can be manufactured. For each manufacturing process, the solution calculates the machine cycle time and cost, including set-up, labor and burden. The raw material cost is then added to determine a final should-cost estimate.
Costimator OEM comes with over 2400 work centers, 2600 parametric elements, 3500 process standards and 2000 material types preloaded in the application. Each work center is populated with average shop rates for over a dozen countries. Most of this information comes from the 900 plus companies that the company has worked with since 1982. “One of the key benefits that our solution brings to OEMs is the wealth of real-world information it contains,” said LaJoie.
Most end users of this tool are cost estimators, cost engineers, or manufacturing engineers. They select the processes a supplier would use to manufacture the part, enter in the basic information required for each operation (cutting distance, surface area, etc.), and then the system calculates the cycle time and cost. Most of the information required to perform the estimating task is resident in the drawing of the part. See screenshot #1 for an example of the detailed information involved in costing out a particular step.
Bills of materials and stock specifications can be imported as flat files from other programs, or customers can input them into Costimator OEM manually.
As an alternative to detailed bottoms-up cost estimates, Costimator OEM also offers parametric should-cost modeling. In other words, the application can forecast pricing based on certain basic attributes of a part or assembly such as diameter or weight. For example, if an OEM knows that a 2” gear costs $10 and a similar 20” gear costs $25, the application can use that data to forecast the cost of similar gears of other sizes. “Most OEMs prefer to stick with the bottoms-up, detailed costs, however, because what they yield can be used to negotiate with suppliers,” said LaJoie.
Some of MTI’s customers, who play in completely different industries, use the application for its formatting and reporting capabilities. They insert many of their own models and rates and forecast not only their own part costs but their competitors’ as well! For obvious reasons of competitive advantage and confidentiality, these OEMs don’t reveal much about their use of the tool and the advantages they gain by using it.
For those companies that do not have the manufacturing process knowledge or the available resources to use a tool such as Costimator OEM, MTI Systems has another solution: They perform should cost estimating services for OEMs.
It appears that MTI is doing extremely well, claiming double digit revenue gains since Costimator OEM hit the market. The company just released a new version of its OEM software last month, and customer IBM recently recorded a wonderful testimonial for the product. (Visit MTI System’s homepage to hear it.) The company boasts hundreds of customers, including OEMs Oshkosh Truck, Delphi, BAE Systems, IBM, Siemens AG, Autoliv, Caterpillar, Lenovo, Seagate Technology, and Siemens AG. With pricing for the solution starting at under $13,000, it’s hard to argue against at least giving it a try.