Cost analysis in purchasing and cost engineering

Why Purchasing and Cost Engineering Need Should Costing  ⇓

High cost pressure, an extensive supply chain, low resources, rapid change with new technologies and materials - buyers are challenged in value chain management. Manufacturers are faced with product complexity that arises from customer requirements and new manufacturing technologies.

At the same time, the potential for value creation lies in the high proportion of purchased components. With the procurement strategy 'Should Costing' companies secure their profitability and put purchasing in focus.

The most frequently asked questions about Should Costing (and answers below)

1. Why are cost targets not achieved in purchasing?
2. What are the requirements for profitable purchasing?
3. How can purchasing costs be controlled in a targeted manner in global corporate structures and supply chains?
4. What IT systems are available for cost estimation and cost optimization in purchasing?
5. How can cost analyses of purchased parts, target costing and processes for cost reduction be accelerated?
6. How can costs of purchased parts and manufacturing processes be evaluated reliably?

Why are cost targets not achieved in purchasing?

In order to achieve a reliable cost estimate and the best price for purchased parts and components with suppliers, cost analysis of purchased parts is necessary. This means being able to understand the prices of individual components and compare them with predefined target costs. The required exchange with internal company departments such as development and production and external reference groups, the suppliers, often remains unsystematic and makes targeted value creation more difficult.

Challenges in purchasing processes and cost engineering

• Different departments contribute to value creation
• Processes run in silos and only partially across locations
• Corporate departments central to purchasing work with their own file formats and non-networked systems
• Knowledge is not available company-wide and exists in silos
• No standardization in quoting on the supplier side
  
  

Should Costing enables teams from development, purchasing and cost engineering to efficiently manage purchasing processes and cost estimates from product development onwards. Collaboration with suppliers is empowered to achieve the best price for purchased parts.

What are the requirements for profitable purchasing?

New products, unknown manufacturing processes and production relocations require know-how in the production process from procurement teams. As a result, companies are engaging suppliers and procurement in product development to...

• Build knowledge of products and manufacturing
• Taking costs into account from the outset
• Identify savings potentials together with the supplier
  
  

This is where a strategically oriented procurement process comes in, the characteristics of which we can describe in seven simple points:

1. Fast supplier selection
2. Use of company-wide data for purchasing calculations
3. Valid and simple cost evaluation of manufacturing processes
4. Establishing comparability through standards in cost accounting
5. Determine reliable values for target costing and calculate achievable target prices
6. Identify cost reduction measures internally and together with suppliers
7. Implement efficient structures and accelerate purchasing processes
   
   

How can purchasing costs be controlled in a targeted manner in global corporate structures and supply chains? 

In order to increase the share of value added in purchasing, a holistic management method such as Enterprise Product Costing (EPC) is required.

EPC enables uniform cost control throughout the entire product lifecycle. The result of collaboration with relevant business units is to control costs at an early stage, starting with the development phase. The prerequisite is that all business units and locations calculate using the same data and methods.

To this end, enterprise product costing integrates all key company departments from Development and Production, Purchasing (Procurement) and Sales to Controlling and Top Management.

In order to increase the value-added share of purchasing and cost engineering, Should Costing is seen as an important component in the Enterprise Product Costing approach. Such standardization leads to the achievement of the following points:

• Database system for purchase calculation
• Company-wide valid data as calculation basis
• Standardized calculation methods
• Uniform and realistic cost models
• Simplified implementation of target costing
• Systematic coordination of cost reducing measures
• Comprehensive reporting

What IT systems are available for cost estimation and cost optimization in purchasing?

In production companies, enterprise product costing is implemented in purchasing with the help of appropriate IT systems. EPC systems combine all the company's cost information in a central database. This includes company-wide information from Enterprise Resource Planning (ERP), Product Lifetime Management (PLM), Product Data Management (PDM), Computer Aided Design (CAD), Excel and, for example, external benchmark data.

The information is made available in a central application for further processing. In purchasing, these are enterprise systems such as EPC Should Costing. All employees use a valid database for their purchasing decisions. Cloud-enabled software solutions can also be quickly deployed in companies.

Advantages of EPC Should Costing at a glance

• Fast decisions through standardized cost evaluation, e.g. work with a uniform cost structure for each part of a product group and compare offer prices and cost structures of suppliers within product groups more quickly.
• Establish efficient processes in the collaboration of cross-departmental teams from product development, production and purchasing
• Expand knowledge of production processes in purchasing in order to be able to specifically break down and optimize processes and manufacturing procedures in workshops and technical negotiations with suppliers.
  
  

Download overview of the FACTON EPC Should Costing solution.

How can cost analyses of purchased parts, target costing and processes for cost reduction be accelerated?

The structured design and the easy handling of the software enable cost analyses to be created quickly. This means that even non-technicians are able to map a best-practice price for products and prepare fast and precise cost analyses.

• Perform part-price analyses quickly, transparently, and at any time
• Determine target costs with integrated benchmark data
• Identify and evaluate cost reduction potentials through simulations
• Evaluate manufacturing variants with integrated cost models 
  
  

FACTON counts well-known companies from the industry among its customers. From the automotive industry, Ford worldwide relies on purchased part price analysis with EPC Should Costing.

Together with the consulting firm umlaut, FACTON has implemented a project that enables companies to realize savings potential in purchasing within a very short time. ⇓

How can costs of purchased parts and manufacturing processes be evaluated reliably?

For optimal cost analysis, FACTON EPC Should Costing also offers integrated, external comparison data. A wide range of data sets on material, salary and overhead costs and machine data are available. Without an internal database, buyers are able to determine costs of purchased parts at an early stage and simulate scenarios.

For the cost evaluation of manufacturing processes and components, users take advantage of cost models. Company-specific models for cost evaluation can be made available via applications such as the EPC Cost Model Designer. The designer allows users to digitize their own cost models and share them with the team at the touch of a button.

Users leverage specific costing specifications directly in EPC Should Costing solution and evaluate complex manufacturing processes quickly and consistently across the company:

• Ensure high quality cost evaluation because cost models are created and used in a dedicated development, test and production environment.
• Reuse company-owned library of cost models across all locations as often as needed.
• Create cost models according to a structure that is always the same and simplify the maintenance of the evaluation specifications.
  
  

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