The overall goal of Supplier Costing is to reduce the price paid for a part and many different approaches are taken. Quite frequently, management will establish cost reduction goals and demand sufficient price reductions from the supplier. These arbitrary price reductions can leave profit on the table because they are not based on a thorough understanding of the true manufacturing costs involved. They can also weaken the supply chain and risk putting price competitive suppliers out of business, which is bad for everyone. A much more fruitful and fair approach is to compare supplier price quotes against an independent DFMA estimate of the true manufacturing cost. The discussions that take place after this comparison is made should have the objective of understanding any differences. DFMA identifies all major cost drivers for each manufacturing process so that the important cost related questions can be asked during these discussions. The DFMA results indicate the true cost of each step required to manufacture the part so that, during these discussions, the breakdown of true manufacturing cost is understood by both sides.
DFMA benefits are realised most quickly when it is used to verify supplier prices for parts that are in current production. DFMA true manufacturing cost estimates give purchasing and supply chain management a unique advantage that they do not have with parametric cost models that are based on historical price data. For each step in each part’s manufacturing process, DFMA estimates the true cost of material, setup, labour, reject parts, and dedicated tooling.
Incorporating Supplier Costing up front in your product development process leads to early supplier involvement. Suppliers that will eventually be making the parts should contribute to their design so the parts can be most cost effectively produced with existing capabilities. However, the choice of suppliers that are involved early in product development may have a dramatic impact on the overall cost competitiveness of the resulting product. For example, it is very unlikely that a sheet metal supplier will recommend a lower-cost die cast alternative for a series of sheet metal parts. DFMA can help designers identify the most cost effective design alternatives so that the right suppliers are involved during product development and performance objectives can be satisfied at minimum cost.
DFMA helps you understand the true cost to manufacture your product and helps establish the price you really should pay for components. Sharing this information with your suppliers promotes exploration of methods to improve manufacturing efficiency so that cost targets can be met without sacrificing supplier profit. It also removes the heavy-handed price reduction demands put upon suppliers that may not be justified.
A Supplier Costing process that incorporates DFMA can be an important part of your new product development process and an immediate benefit to managing your supplier costs.
Contact us to learn more about DFMA and supplier costing.