Want to halve the cost of Chinese machine components? Try using “should-cost”

Eight hundred Renminbi is the going rate for a machine component in China.

Yet, while that is what the market will stand, is it the right price? And how can you know for sure?

Vendigital spent six weeks in China in 2017 (CHECK), travelling everywhere from Shangai to Shenzen interviewing suppliers on behalf of Spectris, a European firm that produces highly specialized measuring instruments for industry.

We wanted to make sure Spectris was getting the best price for the components it needed.  So we evaluated suppliers on the basis of “should cost”. The outcome? We got a price for a machine component down from 800rmb to 367rmb, a saving of more than 50%.

“Should-cost” is a term familiar to anyone who has worked in the automotive industry. With a potential for huge savings across many suppliers, automotive firms employ legions of cost engineers. In the UK, Nissan has 150, Jaguar Landrover has 200 and Ford boasts 200.

But “should-cost” is a relatively new concept to the manufacturing industry.

It is a method whereby cost engineers not only figure out the true cost of raw materials, but also ascertain the most cost-efficient way to manufacture a component too.

In this way, a “should-cost” or optimal price is established, which provides a target for procurement and for suppliers. In a territory such as China, where the range of quotes from suppliers can vary wildly, it ensures our clients get value for money and no supplier can “buy the business” and offer a very low but unsustainable quote.

OUTCOME

Using “should-cost” methodology, our experienced cost engineers managed to win £500,000 worth of savings for Spectris in a single year.

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