Commodity Prices in India - Cost Masters

by Ravi Dutt Sharma Digital Marketing

Target Price Cost Estimating Service, a division of CostMasters, provides cost engineering services for mid-to-large sized manufacturing organizations worldwide. The service is an ideal solution for companies that do not have either the time or resources to do detailed product cost analysis in-house. we put empathy for your business , fact based approach , data based analysis & measurable results. Based on numerous consulting projects in the field of product cost analysis and optimization, we have developed comprehensive and competent expertise within the following subject areas.

Cost is an important factor for success of almost every business. Objective of TPA is to help you negotiate cost first time right, as you have the maximum negotiating leverage at the start of the contract. Our aim is to determine the most cost-effective and efficient materials and manufacturing processes for a particular part or product.

TPA can also help you in verification of the adequacy of purchase prices by bottom-up analysis of the underlying manufacturing processes and cost structures. Systematic identification, validation, implementation of purchasing potentials & enhancing profits.

Process/ Approach TPA

A very highly Professional and methodical approach is adopted to conclude TPA for your benefit.

Machine Costs

For the calculation the machine hourly rate is allocated by means of the period of use(cycle time) to unit costs.

Should Cost Analysis: A Tool par excellence in your Cost Management Kit

Strategic sourcing has been an integral part of most supply chain models for decades. The essence of strategic sourcing is to create an environment where multiple vendors competing for a company’s spend drive down prices and drive up performance and services. But what about products and services where there are only a few providers, or where the product itself is so unique or highly specified that only a few suppliers can make it? Perhaps the item in question is custom built, complex to manufacture and purchased in low volumes making it difficult to get comparable competing bids. In many businesses, these categories of spend can be a significant portion of the total. What do these companies do?

One solution to this problem is a technique known as should cost analysis, which allows a company to simulate the manufacturing process and cost structure of its suppliers providing valuable information for supplier price negotiation. In order to understand how and where to apply should cost, it is important to understand the limitations of traditional strategic sourcing.

Where cost comparisons don’t work

The reliance on supplier competition to drive down prices works best when the subject products are very comparable. This is one reason why strategic sourcing is frequently applied to indirect spend. Even when the pricing is complex, for example telecom, shipping or information technology, the actual product or service is fairly comparable so it is relatively straightforward to compare opposing proposals.

Strategic sourcing gets more complicated when applying it to direct materials. Of course many direct spend items are relatively common and have many alternate suppliers so it is possible to do direct price comparisons. But what about an item designed and engineered with characteristics specific to your product. Examples of these items are everywhere from your car to the appliances in your home to the airplane that you fly on. Many of these items are also consumed in relatively low volumes, further complicating attempts to reduce purchased price. This is where should cost analysis enters the picture and provides a valuable additional tool to manage category spend.

Application to sourcing

Should cost models provide insight and direction that can be invaluable when negotiating prices with a supplier. They help purchasing professionals understand what is driving an item’s cost and allows them to explore a variety of scenarios such as how changes in labor and overhead rates or improvements in process efficiency might impact an item’s price. By comparing the model’s output to a quoted price, purchasing can infer profit margins, production efficiency, overhead costs, and other key negotiating elements. It should be in the procurement toolkit of every manufacturer that buys highly engineered and costly items from a range of suppliers

RFQ (Quote) Success Rate

You quote for many parts, but few get converted in Purchase Order in your favor. This might have surprised or worried you and aroused the curiosity to know the reason. If RFQ success rate is very high, it can mean orders for you every time, good news, congratulations …!!! , Hold on, it can be an indication of low profitability or losses in future due to under quoting. To get orders is good, but to get healthy orders is what you should be looking at. Balance is the key, monitor your RFQ success rate and trends may prompt you to analyze it further for better profitability of your company.

In negotiations, it is normally observed that either in curiosity, to honor a relation or under pressure, you may agree a price , the phenomenon called “The danger of selling at price”. TPA helps you go prepared with data and acts as a traffic light signal, telling you where to stop and say no. If you are not able to detect the bad price part, it will make losses for you

Today, in some organizations, it is mandatory to furnish detailed cost break ups along with the quote. Due to lack of time and focus on main business activities, you are not able to provide and it becomes a reason for not selecting your bid. We can do this for you , as per the guidelines provided by you and as per industry benchmark , in a convincing format , increasing the chances of your bid winning a healthy order and a feeling of trust to your Buyer.

Product Cost benchmarking

(Crossing the threshold – Exploring the best)

External experts evaluate and analyze cost comparisons for alternative product versions (e.g. competitor products, alternative product designs).

Best practice-determination of product-specific manufacturing processes and cost structures based on tried and true benchmarks.

Along with customer nominated CFT , Approaches for the comprehensive cost optimization of pre-series and serial products (e.g. loss products) are generated and evaluated in terms of potential capacity.

It helps in identification of Cost reduction potentials , design simplification , generation of VA-VE ideas , enhance customer & competition centric new product developments.

Case Study – Competition Product Cost Benchmark

Product Cost Benchmarking aggregate wise contribution study helped the organization to achieve:--

Identify cost reduction Potentials.
Generate VA/VE ideas for improvement in product & reduce cost.
Insight of competition cost structures & their impact on customer.
Aggregate wise detailed analysis to pin point the focus areas.
Self realization of available options in proprietary spend category .
Feature wise contribution in the machine cost & customer focused enrichment of product.
Adopting and incorporating best practices in design upgrades resulting in optimal cost & compressed lead time from design to market.

(Re)Design-to-Cost

(Design diligently for optimum cost )

80-90% of the product cost is built-in at design stage , selection of materials , manufacturability , tolerances etc.TPA helps is concurrent costing of different concepts with minimal effort to evaluate the cost performance of design , resulting in optimum compatible design selection.

Cost optimization for product design and engineering, creating value while maintaining capacity and quality (cost-orientated creation of product value).

Bottom-up-validation at an early stage, detailing and the trace of the target performance during the product development process.

Sustainable re-establishment of the competitiveness of serial products that have experienced a market-driven decline in prices and margins.

Cost Reduction Potentials - Identification & Realization

Dynamic market conditions may force us to re-visit the cost of parts. Low volumes & unpredictable factors during initial development gets stabilized with time , with opportunity for cost reduction . On the contrary process cost drivers like labor wages , electricity charges witness increase. TPA helps you to evaluate all the aspects before approaching suppliers for negotiations. In few instances , the part costs were settled in past and still may have cost reduction potentials , TPA efficiently does this for you.

Manufacturing optimization(Creating value through Supplier Partnerships)

Optimization of the product costs by increasing operative manufacturing efficiency, focusing directly on the relevant cost drivers.

Integration of the value stream mapping method into bottom-up calculations and product cost analysis (cost-orientated process value engineering).

Valid monetary quantification of the cost-per-unit effects caused by measures taken to change and optimize product manufacturing processes.