Quotation costing is not just math but the key to your business success.
But how do you calculate precisely when future costs are uncertain? Material prices, volatile components, and incomplete data complicate the process. At the same time, the pressure to be faster and more efficient than the competition is increasing.
However, this is where the potential lies in minimizing risks through optimized processes and increasing competitiveness.
Read in our article how a well-founded quotation calculation can open up untapped opportunities for your company.
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Although quotation costing, preliminary costing, and price calculation are often used synonymously, they have subtle differences in meaning and application.
A preliminary cost estimate calculates the costs of a product or service in advance and thus provides a basis for planning, pricing, and economic evaluation.
The quotation calculation creates an individual quotation based on the calculated costs, considering customer-specific requirements such as special requests or discounts.
Both forms of costing help to accurately estimate the costs of a product or service before production or provision. They serve as a reliable basis for pricing and the preparation of quotations.
The primary purpose of a quotation calculation is to calculate the specific costs of a quotation to enable transparent pricing.
The quoted price considers direct and indirect costs and individual requirements, requests, and discounts.
In contrast to more general calculations, the focus is on the precise price adjustment to a specific offer.
The quotation calculation scheme serves as a basis for precisely calculating the individual costs of a quotation.
According to our market study, most manufacturing companies (91.7 percent) use overhead costing as their standard method.
The costing sheet below is often used for quotation costing in production.
A well-thought-out quotation calculation is much more than a step in the process for manufacturing companies. Its importance is particularly evident in an industry where innovation and efficiency are crucial.
Here are three reasons why it is worth paying special attention to this topic.
For manufacturing companies, improving the effectiveness and efficiency of their core processes, such as development, production, and procurement, has been essential for years.
Value-adding areas benefit from standardization and automation, but indirect processes such as quotation calculation are often neglected.
Focusing on these neglected areas can achieve efficiency gains and lead time reductions of up to 30%.
The success of a company begins with a precise quotation calculation. A too high price often leads to orders being lost to cheaper competitors.
On the other hand, an overly optimistic calculation results in loss-making projects that burden the company in the long term. For an automotive supplier, for example, it is completely normal to commit to an OEM for a period of five years.
Long calculation and quotation times can cost companies the contract if competitors react more quickly. Shorter response times increase the probability of winning orders.
Under intense competitive pressure, error-free and competitive calculations are crucial. Incorrect assumptions can make projects unprofitable or lead to the loss of orders. A slow or inaccurate calculation can have serious consequences, especially in the automotive industry.
In the next step, we take a closer look at the quotation calculation process.
The quotation calculation is the result of interdisciplinary collaboration. Each specialist department involved has specific tasks throughout the process:
SalesThese areas are each required to make a targeted contribution to the following tasks:
Some sectors, such as the automotive and mechanical engineering industries, have particularly complex requirements for calculating quotations. As a result, they benefit enormously from the optimization of these processes.
Here are six factors that indicate your proposal process needs your attention.
1. Product complexity
Many variants make the calculation more complex, as different materials, designs, and production processes must be considered.
2. Production type
Companies that manufacture ("make to order") or develop ("engineer to order") to customer specifications must calculate each order individually. This individual customization makes the process so time-consuming. This is often the case for suppliers in the automotive industry who have to fulfill specific requirements for various OEMs (Original Equipment Manufacturers).
3. Cross-location production processes
The calculation must include additional logistics and coordination costs if production is organized at several locations.
4. High number of purchased parts
Many components require a detailed cost analysis to determine their influence on the overall costs.
5. Special production requirements
Processes such as just-in-sequence production require meticulous planning and often cause additional complexity in the calculation.
6. Individual project requirements
Project conditions such as customer requirements or technical challenges must be considered for customized offers.
Enterprise Product Costing (EPC) is a cost management method used to calculate product costs uniformly throughout the company. The aim is to control costs early on from the development phase and throughout the entire product life cycle. An EPC solution offers considerable advantages:
Quotation costing in the automotive industry is a time-consuming and complex process. Suppliers must first create an internal cost calculation, adapt it to the sales department's requirements, and meet all OEM specifications.
A key challenge here is the quotation breakdown, also known as cost breakdown or open-book calculation. Suppliers must disclose their products' cost structures in detail to meet OEMs' requirements.
OEMs provide specific calculation templates for the quotation breakdown, which must be used bindingly. Each template differs from OEM to OEM, significantly increasing the complexity of the quotation calculation. The large selection of product variants requires many individual calculations, increasing the workload and the risk of errors.
Cost data is traditionally transferred manually to the OEM template. This process is time-consuming and error-prone.
EPC systems are revolutionizing the way automotive suppliers send quotation data to OEMs.
Internal calculation data can be automatically transferred to OEM-compliant templates. This significantly reduces human input errors.
The system also ensures that the data is consistent and up to date, enabling transparent and reliable communication with customers.
The real-time synchronization of internal and external calculation data ensures continuous accuracy. At the same time, manual effort is significantly reduced.
Precise quotation calculation is the key to economic success and competitiveness.
Error-free and fast calculations protect margins and create trust among customers through professionalism.
Many challenges exist - from complex product variants and customer-specific requirements to tight schedules. These requirements make innovative tools such as EPC systems indispensable.
Modern costing solutions help to standardize processes, avoid errors, and significantly increase efficiency. Those who use this potential control cost better, optimize their decisions and react more flexibly to market requirements.
Now is the right time for companies to question their costing methods and invest in future-proof systems.
Discover FACTON's innovative calculation solutions!