Information about Enterprise Product Costing, software and more.

    How Companies Quickly Achieve Cost Reduction of Purchased Parts

    27/04/2020, Author: Kai Fischer

    With more than 20 years in the market, FACTON with its EPC Suite is one of the leading providers of costing solutions. Our customers cover almost all manufacturing industries from the automotive industry to furniture, medical technology or machinery.

    A central approach - practically the philosophy - of our work is:
    The faster and more reliable enterprises calculate product costs, the more time and options they can use for cost optimization.

    1. The sooner companies start estimating or calculating components and production processes, the easier it is to optimize costs.
    2. And the sooner product cost structures are transparent, the better cost factors are identified, and alternative solutions are modeled and calculated.

    Implementation and success depend on various factors. From customer discussions with employees from purchasing and procurement departments we know the requirement to further reduce costs for purchased parts.

    But we also know the obstacles that the divisions have to deal with:

    • Secure know-how: Usually, know-how about technologies and manufacturing processes is not comprehensive in purchasing/procurement. Enterprises compare the offers they receive, but do not know whether the supplier is offering the best price.
    • Limited technical resources: To check offers more reliably, more parts have to be calculated. However, the necessary technical resources are often missing. On the one hand this is due to the deficit of skilled workers, on the other hand it can be explained by the fact that the preparation of a calculation with all necessary details takes a lot of time.
    • Standard cost models do not fit: Most enterprises use available standard cost models, although they do not fit them, do not cover specific needs and lead to inefficient processes.
    • Calculation specifications in spreadsheets: In many companies, circulating spreadsheets make it possible to calculate construction and purchased parts. Colleagues who have created the models in the spreadsheets no longer work in the company, and yet the spreadsheets still have to be adapted to current developments.

    visual-whitepaper-should-costing-enUnderstanding supplier cost structures and identifying optimization potential. White paper "Should Costing: Achieving the Best Price for Purchased Parts". Read more.


    Considering the four difficulties, interested parties and customers keep asking us for tools. More options for action and control offer cost models.

    Cost models...

    • that adapt to the specific requirements
    • whose users can work with, even if they are not familiar with the technology behind it and
    • whose results receive the necessary transparency.

    Our answer to the requirements: "Work with a Cost Model Designer"

    The EPC Cost Model Designer is a tool for cost engineers or costing teams to create cost models that can be used by all users of our EPC Should Costing solution.

    How does a Cost Model Designer help?

    A cost model can be simple, like painting of one layer of a plain surface. It can also more complex and contain multiple production steps in one model – even by using existing cost models.

    Example: Cost calculation of a 3-coat painting process, including the drying steps in between.

    Based on the specific requirements, the cost model from the EPC Cost Model Designer can automatically create the complete BOM structure and assign the appropriate standard machine and workforce to each step.

    What advantages do digital cost models provide?

    End users reliably evaluate costs with only a few parameters. In our example of the 3-coat painting process, the mentioned parameters are those that determine the size of the painted surface and the thickness of the coating. The calculation is performed by the cost model. End users receive the information for each manufacturing step and thus for all cost drivers that ultimately lead to the total production costs of the part.

    As an enterprise solution, the EPC Cost Model Designer consistently optimizes the processes and workflows of cost evaluation:

    • Our customers create and maintain a library of cost models that can be reused. Cost models can be combined and nested. 
    • The creation of a cost model follows a specific structure. This supports the maintenance of cost models, since all cost model experts just need to follow the structure to understand the logic of the cost model, even if they did not create it.
    • Users benefit from a high quality of cost evaluation because cost models are created and used in their own development, test and production environment.

    What benefits can purchasing and procurement departments generate in their cost reduction strategies?

    To come back to the discussed requirements of our customers. FACTON EPC Cost Model Designer supports standardized and digital processes in product cost calculation with the following benefits for daily work:

    • Minimize errors in the calculation by automating in cost models.
    • Reduce the time required for calculations, since the complete parts list is created automatically.
    • Save the knowledge required to recreate a calculation.
    • Use existing knowledge about product costing within the enterprise without any media disruption.
    • Create optimal conditions in purchasing to achieve better negotiation results. The calculation provides all details necessary for a good negotiation with the supplier.

    The result: See the effects of the EPC Cost Model Designer in your profit and loss statement through reduced costs for purchasing parts.

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    Learn in our webinar on-demand how to achieve added value in Should Costing with digital cost models.

    Watch or download now


    Kai Fischer_FACTON_CostSmarter

    Kai Fischer

    Senior Product Manager | FACTON