As automotive companies become increasingly specialized, purchasing parts from outside suppliers is the norm. And as the outsourcing trend continues, much of the legacy knowledge of how parts are made and how much they cost is being lost, according to John Chrisekos, President of Intellicosting, a company whose business is determining the true cost of manufactured goods.
“There is a lack of cost transparency today,” explained Chrisekos, “especially in companies with well-defined organizations that separate finance from engineering.”
While some consult market pricing databases they have built up over the years, others simply compare competing bids and select the best, he said.
“What has happened is that market pricing has taken over,” remarked Chrisekos. "Market pricing is what the market will bear, not what it costs to make,” plus a fair margin, he said.
Knowing only the market pricing puts managers, buyers, and suppliers alike at a disadvantage, according to Chrisekos. Often it is difficult to know if the price is reasonable. Companies also may not know enough to make design changes to reduce cost.
True cost data also is useful in competitor analysis. Intellicosting applies a forensic approach to its methodology. Manufacturing experts with decades of experience examine parts in the company's 14,000-ft2 (1300-m2) facility. Capabilities include a machine shop for either teardown or prototyping parts and an electronics laboratory.
The experts study a range of variables from materials, processing methods, geometry, and part volumes to country of origin, transport costs, and insurance rates.
Chrisekos emphasizes the approach is not theoretical or historical. It is based on extensive, practical knowledge of manufacturing processes. His teams have compiled over 100 separate manufacturing cost models supported by validated data.
Many of Intellicosting's projects start with only a physical sample of the part. Others have a part and a print. “Often, we say we just want the part and no other information, not even the current pricing,” said Chrisekos.
The findings can be surprising. Not only have they discovered prices exceeding cost, as expected, but they also find costs in excess of price.
“In those cases, we have to look at the broader picture to find out what is going on. That is not a good situation either,” Chrisekos explained.
One customer is Keith Krett, Senior Pricing Analyst from Eaton's Vehicle Systems Group. He related why this approach is beneficial for his organization.
"Having that kind of data allowed us to sit down with our suppliers and work as a partner to identify cost-out opportunities," explained Krett. "Intellicosting helped us identify multiple options and improved processes to reduce overall manufacturing cost."
Chrisekos is quick to point out that his company's forensic approach to cost analysis is useful in developing products from a "blank sheet" as well. In that sense, they are practitioners of Design for Manufacturing (DFM.)
However, for organizations to fully optimize a proactive cost analysis that leads to a DFM approach, he believes they have to move through three phases of maturity—Cost Awareness, Cost Recovery/Avoidance, and Designing to Cost.
Achieving Cost Awareness means organizations understand the current manufacturing cost rather than market price, he explained. In the Cost Recovery/Avoidance phase, they take action into current programs, renegotiating current contracts or evaluating engineering changes to existing parts using true cost data.
At the third phase, organizations proactively understand cost at product inception — designing and sourcing to a competitive cost rather than taking it out after production has begun. From this perspective, DFM is the end of a process an organization goes through to reach cost maturity.
Besides looking at individual parts, Intellicosting also offers portfolio studies of commodities across programs, full vehicle studies, as well as more rapid week-long studies for single parts with mild complexity. Organizations that have used the services include Chrysler, Dow Automotive, Lotus Engineering, and the U.S. Army TARDEC National Automotive Center.