VAVEhub · Toolkit 09
Should-Cost Build-Up
Rebuild a quoted price from the bottom up, one layer at a time. The gap between the quote and your total is what you discuss with the supplier.
Step 1 · The seven layers
| Layer | How to build it | £ per part | % of total | Question for the supplier |
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| 1 · Material | Gross weight (with offcut) × price per kg for this grade | | | |
| 2 · Process | Machine rate × cycle time, for each operation (Step 3) | | | |
| 3 · Labour | Operators × time per part × local labour rate | | | |
| 4 · Scrap | Expected scrap rate × the cost of layers 1–3 | | | |
| 5 · Overhead | Plant costs. Depends on how busy the plant is; use typical local rates | | | |
| 6 · SG&A | Sales, general and admin, usually a percentage | | | |
| 7 · Fair margin | A fair profit, typical for this kind of part | | | |
| Should-cost (layers 1 to 7) | |
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| Quoted price | |
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| The gap = quoted price − should-cost (£ and % of the quote) | |
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Step 2 · Machine rate
| Machine | Depreciation £/yr | Energy £/yr | Floorspace £/yr | Maintenance £/yr | Hours a year | OEE % | Rate £/h |
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Rate = (depreciation + energy + floorspace + maintenance) ÷ (hours a year × OEE). How busy you assume the machine is can move the rate by ±30%.
Step 3 · Process and labour, operation by operation
| Operation | Machine | Cycle time (s) | Parts per cycle | Machine rate £/h | Process £/part | Operators | Labour rate £/h | Labour £/part |
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Process £/part = machine rate × cycle time ÷ 3,600 ÷ parts per cycle. Labour £/part = operators × labour rate × cycle time ÷ 3,600 ÷ parts per cycle.
Step 4 · Sense-check before you meet the supplier
| Price per kg against your LPP line for similar parts | |
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| Other quotes or past prices | |
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| The layer you'll challenge first, and the fact behind it | |
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Worked example (Module 9): a stamped bracket quoted at £1.85. Material £0.62 + process £0.31 + labour £0.09 + scrap £0.04 + overhead £0.22 + SG&A £0.08 + fair margin £0.06 = should-cost £1.42. The gap is £0.43, 23% of the quote. Take a fact to the meeting, not a percentage: “your quote suggests the press shop is only 55% busy. Is that right?” Never push a supplier below a fair margin.