Should Costing

    Understand suppliers cost structures and optimize purchase parts prices 

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    Content

    1. Why is Should Costing important for manufacturing companies with complex supply chains?
    2. Why Can't I meet my target costs? - Inefficient processes and tools 
    3. Best Practice - Enterprise Product Costing (EPC)
    4. Consistent enterprise-wide cost control throughout the entire product lifecycle
    5. Should Costing as a component of Enterprise Product Costing (EPC)
    6. Implementing Enterprise Product Costing with IT systems
    7. The right software: FACTON EPC Should Costing
    8. Valid benchmark data accelerates analyses

    Why is Should Costing important for manufacturing companies with complex supply chains?

     Download Summary: All You Need to Know About Should Costing

    Today’s businesses face previously unknown challenges in their value chain. This includes a dramatic rise in protectionism paired with a decline in resource availability and rapid technical changes arising from new technologies and materials. Moreover, manufacturers also face increasing product complexity resulting equally from customer requirements and the highly advanced possibilities afforded by the industry. 

    The digitization trend in particular is making it increasingly difficult to understand supplier cost structures and identify optimization possibilities because design engineering and production workflows lack transparency and are difficult to assess. 

    But this is where a great deal of the potential lies in dramatically optimizing product and/or production costs: 

    Due to the growing number of purchased components in product manufacturing, development, purchasing and cost engineering all have a major impact on the cost structure and therefore also the profitability of a product. 

    It is well known that component production comprises a wide range of factors and parameters, from the raw material price to wage cost developments to logistics costing. In some cases, these factors change on a daily or even hourly basis, particularly manufacturing steps that depend on exchange rates and raw materials. Therefore, the well-known adage “profit lies in purchasing” is absolutely correct. Insight into supplier cost structures is thus indispensable in order to consistently achieve the best price for purchased parts or components. This is made possible by a coherent purchased part price analysis because it quickly, transparently and coherently explains the prices of individual components and enables users to compare them with the predefined target costs. Predefined cost targets and requisite cost reductions are then easy to evaluate and compare.

    However, a complex environment poses barriers to target-oriented value creation in procurement:

    •  Many different departments contribute to value creation
    • Processes run enterprise-wide
    • Every department and/or location has its own file formats and systems, some of which are not compatible with each another
    • The knowledge and experience of individual experts determine the success of cost optimization actions

    Why Can't I meet my target costs? - Inefficient processes and tools 

    So, among other requirements, purchasing and cost engineering must have an analytical process to obtain detailed insight into product cost structures and manufacturing processes within the scope of the purchased part price analysis outlined here.

    Possible barriers and potentially inefficient processes and tools are:

    • Lack of transparent cost structures at suppliers
    • Lack of expertise regarding the manufacturing technologies used by suppliers
    • Lack of a database for useful benchmarks
    • Lack of knowledge of actual cost drivers
    • Lack of supplier integration in cost management
    • Lack of standardization in proposal management on the supplier side

    Detailed information on the individual points can be found in the free white paper "Should Costing".

    Best Practice - Enterprise Product Costing (EPC): 

    Consistent enterprise-wide cost control throughout the entire product lifecycle

    To master the challenges outlined above, enterprises need a comprehensive management method, such as Enterprise Product Costing (EPC). EPC is a method that is designed to achieve consistent enterprise-wide cost control throughout the entire product lifecycle. The aim is to control costs early on, starting from the development phase, through cross-departmental collaboration. It is essential for all business divisions and locations to perform costing based on the same data and methods in order to achieve transparent, comparable product costs.

    This makes it possible to actively engineer and optimize product ideas and innovations while keeping an eye on costs right from the start.

    Enterprise Product Costing incorporates all of the key areas of business – from development, production, purchasing/procurement and sales all the way to controlling and executive management.

    Potential for optimization becomes readily identifiable when development, product and manufacturing costs are shaped in a transparent way across all phases of the product lifecycle.

    Would you like to learn more about Enterprise Product Costing (EPC)? Read our free white paper!

    facton-epc-pyramid

    Should Costing as a component of Enterprise Product Costing

    To increase the purchasing and/or cost engineering department’s role in value creation, Should Costing is implemented as a core component of the EPC approach. This entails implementing the following aspects: 

    • Valid, coherent data as a basis for calculation
    • Standardized, realistic cost models 
    • Target price calculation  
    • Coordination of measures
    •  Comprehensive reporting 
    • Standardized calculation methods

    Detailed information on the individual points can be found in the free white paper "Should Costing".

    Implementing Enterprise Product Costing with IT systems 

    In practical applications, the EPC approach is implemented with the help of a corresponding IT system. 

    EPC systems unify all of the enterprise’s cost information in a centralized database. This ensures that every employee works with the same data.

    This includes information from Enterprise Resource Planning (ERP), Product Lifecycle Management (PLM), Product Data Management (PDM), Computer-Aided Design (CAD), and Excel and external benchmark data. Cost data is collected, edited, processed and clearly presented in the application. This gives users the valid, standardized and comparable basis of data they need in order to make solid product and investment decisions. 

    EPC systems also define standardized processes, calculation methods and calculation standards along with calculation logic to promote a uniform understanding of costs and to ensure that it is possible to compare results.

    The right software: FACTON EPC Should Costing

    The FACTON EPC Should Costing solution lets you 

    • identify cost drivers through quickly and transparently created purchased part price analyses that remain coherent throughout the entire product lifecycle, 
    • determine target costs through integrated benchmark data
    • account for cost reduction potential through location simulations, 
    • and determine manufacturing variations through integrated cost models.

    The software’s structured organization and easy handling enable every user to prepare solid analyses – not just technical experts. The general nature of the data also enables non-technical employees to map a best practice price for their products and generate fast and precise cost analyses.

    With FACTON EPC Should Costing you can easily answer the following questions:

    • What are my product costs?
    • What should my product cost?
    • How do I close the gap?

     

    Valid benchmark data accelerates analyses

    Download Flyer FACTON EPC Benchmark Data [PDF; 1 MB]

    FACTON EPC Should Costing features benchmark data content for dependable, external comparative data. There are many data records available on material, wage and overhead costs as well as machine data. Benchmarking helps companies evaluate their own products and services early on and simulate scenarios well ahead of time. Comparing average values from the same industry, other sectors or with internal best practices reveals potential for optimization.

    An overview of the use cases of FACTON EPC in the Should Costing process can be found in the functionalities of FACTON EPC.

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