Why You Need a Cost Breakdown

When it comes to sourcing a supplier, the one thing I won’t compromise on is getting a cost breakdown. In fact, if a supplier won’t give me a cost breakdown, I won’t work with them. There is really nothing that should prevent a supplier from being transparent about their costs. And quite the opposite, if they won’t share it with you, I would be suspicious that they are trying to hide something.

Granted, even with a cost breakdown it’s pretty easy to hide costs. Do I know the rate of electricity in a specific city and how much their machine draws per hour? Of course not. But at least with a cost breakdown you can see where your money is going. And then you can do something about it.

Cost is designed in from the beginning. And one thing I love about pouring over a cost breakdown is figuring out how all those dollars are being distributed. Sometimes you find really great supplier partners who are full of suggestions on how to improve manufacturability and cost of your parts. But they have a narrow view of your product, and they only see the specific part you’ve given them. They don’t have the big picture in mind. When you approach each individual part with the big picture in mind, you can start to pick up on patterns.

For example, if you review your cost breakdown and a little plastic part jumps out at you as being expensive, you can go investigate it and try to find out why. Sometimes it turns out that whatever was designed in was super expensive to produce and had a high scrap rate. So? Now you are armed with information to go back to the drawing board and see if you can alleviate some of those things that were driving cost. I think most people would be quite surprised to find out how much they can improve the cost and quality of their product just by digging into a cost breakdown.

One of the other things I love about cost breakdowns is that they give you an opportunity to see if the supplier understands how to manufacture the product. Often, when you’ve been staring at a CAD model or working with a specific product for so long that you know it inside out, you sometimes forget about certain little relevant details that a supplier would need to know. But if you review their cost breakdown, you can catch things they may have missed or assumptions they made that are incorrect.

Call me crazy, but I love cost breakdowns. Understanding how much it costs and what it takes to manufacture is my favorite part of procurement. And then I’m armed with the valuable knowledge I need to go find those cost reductions!