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Tuesday, August 21, 2012

Cost Estimating - Predicting Manufactured Part Costs

Reliable estimating procedures and systems are key in helping manufacturers fulfill their requirement for appropriate part cost information. When based on the variety of parts and products they produce, a company's procedures vary depending on their size, part complexity, and the company's manufacturing ability.

Company size affects manufacturers estimating procedures...

Smaller manufacturers, who make parts and products that have a relatively simple design, usually rely on less-complicated estimating techniques. It's rather common that the president/owner of a small manufacturing shop may glance at a part drawing and quickly decide on a cost and record the details right on the part drawing. While the owner can assume all risks, this simplified approach has been an acceptable filing method based on memory and the estimators access to information and manufacturing experience.

Large manufacturers with many workers produce a wide variety of parts and products for either long or short fabrication, machining, or assembly runs. For these companies, the estimator or estimating department tries to adhere to a definite set of procedures, in order to facilitate speed, accuracy and consistency. At the end of the day, final decisions come down to costs which must be reliable for the sales team, management and most critically -- customers.

Highly profitable manufacturers employ efficient estimating methods, procedures and systems. They capture and retain information keeping extensive records to guarantee a "go-forward profitability" even when employees and parts or products change -- over time.

The following steps briefly explain a manual approach that can help any size manufacturer be more successful with estimating resulting in a profitable bottom line:

Study and understand the "request for quote" assuring all essential information is includedReview carefully all standard parts and those required to be manufactured or assembled.Identify possible and necessary manufacturing procedures to manufacture all parts.Determine which process may be best processed by another supplier.Identify the materials and cost requirements according to the requested quantities.Determine tooling costs, both durable and perishable to be used.Prepare a process plan.Estimate the manufacturing time for each operation.Apply the labor and overhead rates to each operation.For quality control -- review all steps.

Depending on the estimating method and time to access, calculate and record costs these things can greatly affect an estimate's accuracy and consistency.  When performed manually, success is largely a function of the estimator's skill, and as more time is allowed accuracy and consistency may improve. Conversely, when more time is spent on one estimate less time may be spent on others, and this lacks a bit of certainty that more time will actually improve the estimate to any great degree.

Lacking quality cost information, for any method, can be a "grave digger" for an estimator's time. When estimators need to expend time to search through files, interact with production people, and/or sit and perform manufacturing time studies costs begin to pile up. When using an estimating system that includes easily accessible manufacturing data, such as material costs, speeds, feeds, standards and more, this feature can greatly reduce errors and speed up the estimating process.

Technology supporting new functionality and the ongoing accumulation and addition of manufacturing information continues to increase the value of using cost estimating software. Reinventing the wheel, for every estimate, has never been a cost effective method for manufacturers who seek growth and profitability in today's competitive marketplace.


Cost Estimating software topics, comments, questions, or suggestions for this communication or future articles are always welcome. Please feel free to pass along your thoughts to Jay Snow, Marketing Manager,, 800 644-4318,

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