WHAT IS THE SHOULD COST?
The “Should Cost” represents a realistic value, quoted by a supplier, for the supply of a good. It could be defined as what it really costs to design, produce, and deliver something, adding a reasonable profit for the supplier.
MeC assists you in determining this value when:
- It is necessary to have a precise estimate of the production costs, in order to avoid losses and improve company margins;
- The product you buy from your suppliers is excessively expensive, but you don’t have an internal cost estimator to prove it.
Economic awareness of your investments and savings gives you the opportunity to position your company in a profitable and forward-looking market segment.
Should Cost Analysis: a 360° vision
The skills present within MeC make it possible to face the should cost issue for any type of production activity. Ranging indifferently from the food sector to the paper one, passing through mechanics, electronics, plastics and wherever there is a production process necessary to manufacture an object. The main objective is always to “engineer” the cost in order to be able to make financial and strategic choices on an analytical and concrete basis, built on actual business processes and available infrastructures. Indeed, the cost is closely linked to a manufacturing organization on which the company that turns to MeC is set up. It is for this reason that we are able to “sew onto”, like real tailors, the should cost of each reality. It subsequently brings out all the critical elements, the virtuous ones and the various alternative opportunities, both for large and small companies. MeC comes from a founding experience linked to collaboration with large multinational corporations. Being a SME has allowed MeC to be decisive even with small and medium-sized businesses. This is thanks to the knowledge not only of cost assessment techniques but also of decision-making dynamics within realities with problems and dimensions that are very similar to MeC ones.
Cost Analysis: a MUST HAVE
Cost analysis should indeed become an indispensable technique nowadays. Advanced cost methodologies, such as should cost, serve to gain a competitive advantage in negotiations with suppliers, indicating how much it really costs to design, to manufacture, and to supply a product.
Presented in this way, the concept of “Should Cost” may seems relatively simple; yet the exact definition requires careful review of the many components that contribute to a product’s final cost, as well as the ability of suppliers and buyers to alter those costs. The cost estimate provided by the supplier tells us the price which hopefully is closely linked to the total cost of developing that product, producing it, and delivering it to us.
But is it true?
It depends.
CALCULATING THE PRODUCTION COST
In fact, during a discussion about the product cost with a supplier, you have to pay close attention to what led to that particular cost, namely: the assumptions.
MeC draws on all its experience to ensure that the calculations for the product cost are consistent and updated with the numerous assumptions, both physical (such as the machines used in manufacturing, the number of operators on the assembly line, the process cycle time, or the time for a batch to be set up) and financial (such as material cost, labor rates, overhead costs, profits, and payment terms). It is precisely these assumptions that determine both the gap between the should-cost and the quoted price and the opportunities to close this gap.
The dynamic nature of modern procurement operations and supplier relationships is raising the level of operational excellence in organizations and MeC has the most innovative tools to assist its clients in achieving the right competitive advantage.
A detailed level of the cost analysis is another fundamental criterion that depends on the project progress status. The in-depth knowledge of the issues relating to each individual phase allows MeC to provide general indications at the beginning of the design or extremely accurate costs on elements which are already in the production phase. But the real added value that is got in the precise evaluation of the should cost occurs in the progress of the project with values that can give valuable advice for fundamental strategic choices.
