SourcingApps Cost Analysis

 for Energy  

for Price Productivity Calculator  , Macro  , Micro  

 for Break-Even  

 for Learning Curve Analysis  , Stanford-B  

for Economic Production Quantity  

for Yield Calculators  

for Total Cost of Ownership  

SourcingApps Energy Surcharge Calculator Show Example

How large of an increase do suppliers need to recover lost profits due to increased energy costs?

The idea behind calculating energy surcharges is to use dependable data to determine energy costs as a percentage of a supplier’s net sales billed. This data is not normally known to the salesperson delivering the price increase due to energy cost increases so SourcingApps support includes data from the Annual Survey of Manufacturers so this calculation can be made. Once this calculation is made the difference between the cost increase requested by the supplier and the cost increased needed using industry data can be compared.
 

SourcingApps Price Productivity Calculator Show Example

Can your supplier at least match industry standards when adjusting parameters that give customers more value yet maintain  supplier operating income?

The price productivity calculator is designed to calculate how great a reduction in fixed costs, variable costs or increases in unit volume is needed to allow a supplier to maintain their operating income percentage while reducing their price. Each 1% improvement in:

Price gives a 11.1% income improvement; Variable Cost gives a 7.8% income improvement; Volume gives a 3.30% income improvement; Fixed Costs gives a 2.30% income improvement

The ratios used for these calculations were published in the Harvard Business Review article "Managing Price Gaining Profit", Sept-Oct 1992.

Calculate the actual impact on operating income from changes to net sales billed, and variable/fixed costs for a specific company's financial data.

Price productivity macro allows the user to see the impact of various changes to price, fixed and variable costs on operating income (assumes unit volume is constant).  Income statement ratios for fixed costs, variable costs and profit in percentage format maybe found in the Quarterly Financial Report for U.S. Manufacturing Corporations  (http://www.census.gov/ftp/pub/mp/mfg/msmfg13a.html).  For additional information on this subject see: "Managing Price, Gaining Profit", Harvard Business Review, Sep-Oct 1992.

SourcingApps  Price Productivity Micro Show Example

Calculate the impact on operating income from changes in net sales billed, direct material, direct labor, manufacturing overhead and fixed costs for a specific company's financial data.

Income statement ratios for fixed costs, variable costs and profit in percentage format maybe found in the Quarterly Financial Report for U.S. Manufacturing Corporations and is available as SourcingApps data. (http://www.census.gov/ftp/pub/mp/mfg/msmfg13a.html).

For additional information on this subject see: Managing Price Gaining Profit, Harvard Business Review, Sept-Oct 1992

At what unit of production do total cost and total revenue intersect. The earlier in the production run the higher a company's profit margin.?

Break-even analysis determines the point where total costs equals total revenue. This worksheet provides the user with the capability of testing the impact of changes to costs and selling prices

Determine prices for various quanities based changes in labor paced processing time due to volume changes.

The "Learning Curve" rule states that whenever the quantity of units manufactured doubles, then the average time to produce a unit is reduced by a constant percentage. Many types of learning curves have been observed, we are using the "Cumulative Average Curve" (Wright Curve) versus the "Unit Theory Curve" (Boeing Curve) because the Wright Curve is a better predictor of purchase prices.

Abernathy, William J., and Kenneth Wayne, Limits of Learning Curve, Harvard Business Review, Sept-Oct 1974

Belkaui, Ahmed, The Learning Curve, Quorum Books

Cochran, Edward B., Planning Production Costs: Using the Improvement Curve, Chandler Publishing

Teplitz, Charles J., The Learning Curve Deskbook, Quorum Books

SourcingApps Stanford-B Analysis Show Example

Can the learning acquired from making a similar part be applied to a "new" part?

The "Stanford-B" effect assumes that prior learning can be captured and utilized on new designs given that the new design is consistent with old design and its complexity is similar. "Stanford-B" factors generally range from 1 to 10 with four being the most commonly used. Agreement needs to be reached between the buyer and seller on the "B" factor. After the "B" factor has been agreed to it is possible to estimate the cumulative average labor hours needed to produce the a quantity of parts of the new design.

Determine the optimum production quantity, balancing setup and carrying inventory costs.

Economic production quantity analysis is used to determine the impact of fixed costs (order entry, setup, equipment depreciation), variable costs (material labor and manufacturing overhead) and inventory carrying costs impact the production quantity. Sensitivity analysis assists sellers in determining the impact of changes in the factors affecting the EPQ. It would seem that buyer's and seller's would want to construct a production system where EPQ = EOQ. Small lot production techniques such as cell manufacturing, demand flow manufacturing or SMED (single minute exchange of die) assist in lowering the EPQ.

Are you paying more than you should because the sheet is thicker, wider or longer than your specification? or because the coil is thicker or wider than your specification? or the diameter of the wire is larger than your specification?

Four yield calculators will give quick answers to these questions.

Show Example  (Sheets)

Show Example  (Coils)

Show Example (Wires)

Show Example (Bars)

The task in developing a total cost model for direct material is to define and capture all costs associated with a specific company for a particular item. By creating this total cost model sourcing/selling decisions are made based on total costs versus price. Since costs are spread across many functions, a team approach is suggested to ensure that all the costs of doing business with a particular company are identified and captured. After total costs are accumulated for an item and a particular company they can be converted into a "bid factor." A "bid factor" assumes past behavior will be repeated in the future as such you can compare the total cost of doing business with different companies.