Pricing a part!


 
Question:

Need to build a should cost model as part of an assignment for a manufactured plastic part from a supplier. Could someone experienced give me a rough way of doing this. #shouldcostmodelling

AIMDRIVE-AI Solution:

Should-cost analysis is one of the most effective ways to conduct a cost analysis for a product. It involves breaking down a product’s total price into key cost components:

  • Material Costs — The cost of raw materials used in manufacturing
  • Labor Costs — Wages for workers involved in production
  • Overhead Costs — Expenses like equipment, electricity, rent, and corporate overhead
  • Profit Margins — A reasonable profit for the supplier

By estimating each of these components based on industry benchmarks and cost drivers, you can determine a Should Cost — an estimate of what the price should be. Comparing this with supplier quotes allows you to validate, question, or negotiate prices more effectively. It also helps track cost fluctuations over time and set fair pricing agreements.

Tools like AIMDRIVE-AI simplify the process by automating should cost estimates, making it easier to identify cost-saving opportunities and optimize procurement strategies.

Comments

Post a Comment

Popular posts from this blog

Analyze a Price Increase Request

How to analyze whether a Supplier’s Price Increase Request is reasonable? Solution:  This can be determined with  AI MDRIVE- AI   Price Analysis and can be complemented using  AI MDRIVE- AI   Cost Analysis. Visit https://aimdrive.com/   to perform  AI MDRIVE- AI   Price Analysis and   AI MDRIVE- AI   Cost Analysis Example : Consider a product you have been regularly buying over the past year from a supplier at a price of $10.00 per unit. The supplier now informs you that they need to raise their price to $11.00 in view of increasing costs, i.e. a Price Increase Request of 10%. AI MDRIVE- AI  Price  Analysis : Identify the industry of your supplier and obtain the Market Average Price Movement of products sold by this industry. You find that the market average price movement over the past year was -1%. Use this benchmark to challenge the supplier’s Price Increase Request of 10%. However, the Supplier cites an increase of 20% in...
Read more

How can I reduce supply chain costs through better supplier management?

Image
Better supplier management is key to reducing supply chain costs. Here are some strategies: • Supplier Benchmarking : Compare supplier costs and performance to ensure you’re working with cost-effective and reliable partners.  • Collaborative Cost Management : Work closely with suppliers to identify cost-saving opportunities, such as process improvements or bulk purchasing.  • Negotiate Better Terms : Use data from price and cost analysis tools to negotiate better pricing, payment terms, and delivery schedules.  • Monitor Supplier Performance: Regularly evaluate supplier performance to ensure they meet quality, cost, and delivery standards. By leveraging AI-powered tools like AIMDRIVE-AI ( https://aimdrive.com/ ), businesses can perform price and cost analysis and engage in collaborative cost management with suppliers.   
Read more

Why is AI important in a supply chain?

Image
Artificial intelligence (AI) in supply chain management refers to the use of machine learning, data analytics, and automation to optimize various supply chain processes. For example AI helps reduce costs in supply chain by: • Cost Analysis & Optimization — Identifying cost drivers and providing real-time insights into cost breakdowns, driving data driven decision making. • Price Forecasting — Predicting future price trends based on historical data. • Supplier Benchmarking — Comparing supplier costs to ensure fair pricing. Tools like AIMDRIVE-AI simplify AI-driven cost analysis and procurement by automating cost breakdowns, tracking price trends, and providing actionable insights, helping businesses optimize their sourcing strategies and improve cost. 
Read more