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Your Business 10 MoldMaking Technology May 2015 Product Cost Management Improves Supplier Negotiation CONTRIBUTOR Julie Driscoll is vice president of strategic marketing and product management for aPriori Inc. FOR MORE INFORMATION: aPriori / 978-371-2006 / info@apriori.com / apriori.com By Julie Driscoll The ability to source effectively has a direct impact on profit- ability and time to market for manufacturers. As a sup- plier, your ability to win a bigger share of the amount of outsourced manufacturing is dependent on your ability to respond to request for quotes (RFQs) more quickly and accu- rately than your competition. Certain product cost manage- ment software tools can help take the guesswork out of the process for both manufacturers and suppliers. Here are some tips on how to best use these tools. For manufacturers working with suppliers: Companies that outsource large portions of their manufacturing work typically lose some of their production expertise and, along with it, knowledge of the best methods of production. As such, it's more difficult to understand what a part or mold "should" cost given the many factors involved, including the cost of labor, materials and manufacturing; production logis- tics; and supplier profit margins. Product cost management software can help fill this infor- mation gap by enabling the manufacturer to quickly gener- ate precise "should-cost" estimates for outsourced parts and products. These estimates can incorporate all product cost drivers, including material, tooling, labor and overhead. This information can be used in several ways: to validate supply base cost information; to highlight cost outliers and identify potential material, utilization and manufacturing process alternatives; to focus efforts on the most valuable and highest impact opportuni- ties for the company; to provide sourcing teams with target "should-cost" information for comparison with supplier quotes; and to open up new lines of discussion with suppliers about better ways to produce a part or product. The point here isn't for manufacturers to use the informa- tion to beat up suppliers on price. It's to provide facts that help both sides identify opportunities to produce a part or product more cost-effectively, and to forge more strategic and agile supplier relationships that continue to reduce costs and speed time to market. For suppliers responding to request for quotes: "First in usually wins" is a common refrain from both suppliers and manufacturers. Speed of response is everything, but the sup- plier has to be confident it is also providing accurate infor- mation that ensures a reasonable profit. Many suppliers today depend on manual quote generation, which is highly specialized and time-consuming. It is also subject to the "tribal cost knowledge" of the different indi- viduals estimating a specific part. Product cost management software tools can help suppliers address these challenges on several fronts by enabling them to automatically calculate a should-cost estimate for a product or part based on informa- tion about a part's geometry (design), materials and produc- tion volume. These software tools can also help suppliers quickly consider more efficient and lower-cost manufactur- ing processes for a part based on factory capabilities, as well as help to support fast and accurate recalculation of costs as parameters are adjusted during the negotiation process. With this type of detailed cost information at hand, sup- pliers can enter the negotiation process from a position of strength and confidence, ultimately improving win rates and increasing revenue and margins. No matter which side of the equation you are on, the prop- er product cost management software tools can inform your process and enable a win-win result. The point is to forge more strategic and agile supplier relationships that continue to reduce costs and speed time to market. Product cost management software enables the automatic calculation of a "should-cost" estimate for a part based on design information. Image courtesy of aPriori Inc.