If you are a large manufacturer, with the growth of outsourcing, you have handed over control of a large part of your cost base to suppliers. How do you regain that control?
If, on the other hand, you are a supplier, you might win one in 10 contracts you bid for. You might lose a contract by being too expensive or too late; or you might bid too low, win the work and lose money. How can you make your bids quicker and more reliable?
Kapes (Knowledge aided planning and estimation system) is a manufacturing cost-planning system for helping customers and suppliers cut the cost of buying and selling, and allowing ‘informed negotiation’.
‘People have no concept of what things should cost,’ says Tony Millyard, PS Kapes’ knowledge and rates development manager.
He adds that large manufacturers intent on driving down costs should concentrate on lower-tier suppliers. These are responsible for 40% of the value added in the product but are likely to be working at lower levels of efficiency than higher-tier suppliers. Hence savings are more easily made.
Jaguar, one of Kapes’ big customers, has used it extensively to cut supplier costs over the years. But Millyard says Kapes is not a tool for bashing suppliers. If a customer understands a supplier’s cost base better, it can help in negotiating long-term contracts.
‘Kapes users have typically shown that, when the cost breakdown is fully understood, a minimum of 5% reduction in component costs is achieved, with results often exceeding this,’ says Millyard.
Suppliers can use it to help them with bids. It allows them to see the key cost drivers in any bid, and respond to customers quickly. It can automate much of the process, freeing engineers to concentrate on improving production efficiency. Rather than 10% being added for contingencies by estimators and the boss adding another or subtracting an equally arbitrary figure the firm can see clearly whether it can bid profitably for the work.
Kapes combines data and knowledge, says Millyard. It contains data assembled or deduced from official statistics and other sources in enough detail to break down and cost each step involved in the manufacture of a part.
Data includes time taken for an operation. Government output and wages statistics allow labour costs for the standard industrial classifications to be calculated. Statistics give costs such as the cost per square metre of a factory.
This is combined with data on machining and other capital equipment. Millyard’s team uses 50% of its resources on adding knowledge to the database and employs engineers with decades of shop floor experience. From data on the size of a machine and its energy consumption, the cost of using it to perform an operation can be calculated.
To cost a part, the user has to tell the system the material and describe the features of the component and the quantity needed. Kapes will cost the optimum way to produce it, adding an allowance for profit.
Overheads are not averaged out for a whole factory. So if a part needs an inexpensive machine to produce it, the price will reflect that whereas a supplier may be spreading the overheads of more expensive capital equipment over all his bids.
Labour and overhead rates are worked out from first principles for Germany, the UK and individual US states, called ‘Class A’ figures. For 28 other nations, costs are derived by applying Organisation for Economic Co-operation and Development data to the rates for Class A countries, using UK and US figures, and cross-checking.
Industry’s next step will be to expand Kapes by adding more countries such as south Korea and more manufacturing operations.