Product Cost Awareness Course
I provide online training courses for Product Cost Awareness. These courses are hosted on a user friendly LMS and can be purchased for individual learning.
Product Costing Course
Launching in 2022, this Product Costing course will be hosted on a user friendly LMS and can be purchased for individual learning.
Costing Engineering Support
As a costing engineer, I can support your company directly. Contact me for more information.
Helping you to DELIVER COST SAVINGS by providing TRAINING and freelance Cost Engineer support.
Through correct product costing the whole company could deliver the best cost to their customers for their products and achieve serious cost-saving benefits.
Many companies don't pay any attention to the product costs at all and can't actually be sure of the level of profit made on each unit they are manufacturing.
Those who attempt to have some understanding of the costs, often rely on specialists such as cost engineers, to provide information to the rest of the company and the management and finance team.
With this approach, it is inevitable pricing is incorrect and that savings are left on the table.
If you need more immediate results, I can support your company with my services as an experienced cost engineer and cost modeller and work with you directly on your current product costing and profitability.
I have always been interested in engineering. I started as a child, by taking things apart to see how they work. Sometimes even putting them back together again.
Carrying out teardowns for a car company was just like reliving my childhood, but with very expensive toys, and getting money for doing it!
Expand your product cost awareness, and learn how to leverage savings to improve the product value
Supplier quotation breakdown forms are a key tool to enable you to understand what is behind the costs of the product from your supplier and ensure you get the best deal.
These forms originated from the automotive industry, where they are widely used. Many other industries should also be using these, to analyse and control their spending with their suppliers.
This free mini-training session will take you through the structure of an automotive type breakdown form, and guide you through the required forms and inputs, explaining what they are all used for and why they are required.
We will look at all areas that should be included to allow you to fully understand and improve your costs.
It will prompt you to think about your own goods, and the sort of questions and information you should be requested from your own suppliers, to put you in the best position to be able to understand, analyse, challenge and improve the cost of your product, to be able to deliver significant savings to your company.
In this part of the training, you learn about product cost structures, how to differentiate and understand what makes up the price, cost and value.
You are introduced to the thinking about how to observe and collect information that is used to define the cost.
We look at all the departments in a company that influence product cost, and where we can challenge their thinking and patterns.
In considering the product design, seeing how to take a step back and discuss what is important, and what can be done to improve the design to achieve the best cost.
We are introduced to software tools and methods that will be used for analysis and comparison.
In the exercises, we create and compare costings to identify key differences, and then drill down to a granular level to see the detail behind the top-level information that is actually responsible for driving the cost.
Using the analysis and tools we create ideas for challenging the cost, brainstorm further ideas, and then document these to create a table of opportunities.
Finally, we look at delivering those opportunities to realise the savings and building your product knowledge further and wider.
The training is designed primarily for buyers and engineers but there are also benefits to anyone who needs to understand more about the cost of their products. It will provide you with updated knowledge, tools, and methods that not only enable you to understand product cost but should also spark your curiosity and interest about how to take a longer-term view of planning for the best cost opportunities.
Different businesses have their own methods of pricing their products.
Some use a very simple method of identifying the material costs, hours to manufacture, and then apply a general cost rate covering manufacturing and overheads. On top of this, they add a profit margin
Other companies are quite methodical in their approach and look to understand everything about the technical side of the product before attempting to assign a cost and profit to it.
They look at the features required, materials used, consider scrap levels, identify each process step, how long it takes, what human and machine resources are required. How much it costs to provide each individual resource? Which products use which resource to be able to assign cost correctly? What non-product related support and infrastructure are required to make the company run efficiently?
When they understand these product costs, they are then able to work out how much profit could be applied, so that this product is attractive to the customer.
It could be that the first approach works for you if your goods or service is very simple or your products are linear.
By taking the second approach you have a far better understanding of your costs and how to improve them. You can be clear however about the profitability of each individual product, rather than taking an overall profitability approach where some products could be subsidising others !
Before you consider how much you should charge for an item, you should have a clear understanding of what it costs to manufacture your product. This means ensuring that this product covers its own direct costs and also makes the right financial contribution to the businesses overheads and supporting structure. Any finance and tooling need to be recovered
When this is done, you can start to consider what would be the right amount of profit margin to add, and what the price should be.
The price that you evaluate should take account of company and group financial policies, the marketplace that you are competing in, brand value, and unique selling points that your item may have.
- What volume are you planning on selling, and for how many years?
- Does the company or group have minimum profit margins that must be reached? Can these be challenged in special circumstances?
- Is the product new to the market? Do you plan to offer a low sale price for a limited period?
- How crowded is the marketplace that you want to access? Does the product pricing have to below to be able to win business?
- How unique is your product? Does it have special features/patents or IP (Intellectual property) that make it difficult for your competitors to challenge?
Where you set your pricing (After you have accounted for costs), very much depends on the company strategy of what it wants to make, what markets it wants to enter, and what opportunities it can create in those markets.
It must constantly check its strategy to ensure that it has the right products, and is still competing in the right markets to ensure that it will remain relevant and profitable.
Product cost and Price are often used interchangeably, mainly from the point of view of the supplier v. the customer.
The cost in a product is the sum of all the money a company spends to create something that can be sold. (They then add a margin to produce the selling price).
Product cost covers all the raw materials and purchased parts, the production costs for labour (operators and all supporting staff), machines and factories, allowance for scrap and defects. Above this, all non-direct costs have to be included to cover offices and staff for areas such as Sales, Procurement planning, Administration, HR, IT, Accounting, Project planning, Legal and Marketing.
Understanding and calculating the cost correctly provides you with the foundation on which to build your profitability strategy
Commonly people refer to 3 categories in product costs, such as materials, labour and overheads.
Traditionally this was a simple way to categorise and segment product costs in a manufacturing business.
Materials would include both raw materials and purchased parts.
Raw materials cover bulk materials such as long pipe, steel coil, plastic pellets, billets of metal for casting. These materials are then processed to make into components, that may then be included in an assembly. If you consider the time and cost of the staff for buying these materials and storing them, it may vary according to the commodity. However, the cost per part is normally small, as the bulk material makes many pieces.
Purchased parts can vary significantly in terms of the staff cost to buy and store them. Buying standard nuts and bolts needs far less purchasing intervention than buying specific engineered parts that need to be measured checked and approved.
Very different approaches and subsequent support costs are required between bulk materials and purchased parts.
Labour usually refers to the processing of the commodity. The manufacturing processing of the units involves labour manpower for the operations, support staff, machinery, Factory buildings, structure, services and utilities.
If this is all put under one heading of "Labour", we can't really understand what is driving the costs.
Overheads is quite confusing as a broad term. An overhead is simply anything that is loaded on top and related to something else. Quite often companies apply one or more overhead as a percentage on top of Material and Labour to calculate the cost.
Using the extended description of Labour to cover manufacturing processing, everything associated with production has now been covered. So in this sense, we can look at overheads as non-production supporting costs often referred to as indirect cost. Many industries refer to this as SGA (Sales and general admin). Costs include office-related activities such as the cost of the office buildings, Rent, Operating costs, Sales, Web Infrastructure, Procurement planning, Administration, Taxes, HR, IT, Accounting, Project planning, Legal and Marketing.
These courses are not specifically aimed at one sector or job type but are for anyone who can help the company to improve the cost and values of their products, contributing to the companies profitability.
Most departments in a company have an impact on cost, whether you are from Sales, bids, accounts, projects, purchasing, production or Engineering.
There is huge value for the company in educating staff in cost awareness and costing, which benefits both the company and the employees personally.
Some roles that would possibly gain the most benefit are design engineers, buyers and production engineers, as they probably have the most direct impact on defining the product, and therefore its cost.