Build a should-cost model from material, labour, overhead, tooling and margin cost elements.
Warehousing & Procurement
Should-Cost Modelling and Cost Breakdown Analysis for Purchased Components
Teaches buyers and cost engineers to build should-cost models from material, labour, tooling and overhead data, then use gap analysis to negotiate purchased component prices.
🗓️Duration5 training days
📚Content4 modules · 8 sessions
🎓On completionAccredited attendance certificate
About the programme
Course Overview
When a buyer negotiates only against a supplier's quoted price, the supplier controls every number in the conversation. Should-cost modelling changes that by building an independent estimate of what a purchased component ought to cost from material, labour, tooling, overhead and margin assumptions, so the negotiation starts from evidence rather than the supplier's opening position. This course teaches the full should-cost method: extracting material grade and weight from a drawing, estimating cycle time and machine rate for a manufacturing process, amortising tooling over realistic volumes, and applying overhead and margin assumptions appropriate to where the supplier actually manufactures. Delegates learn to compare a should-cost model against a quotation element by element, identify which cost driver explains most of the gap, and distinguish a genuine cost difference from an overhead or margin assumption worth challenging. The course also covers validating and refining models against real negotiated outcomes over time, so accuracy improves with use rather than staying a one-off exercise. The final module applies should-cost evidence directly to negotiation planning, supplier price increase evaluation and early design-stage cost decisions. Delegates leave able to build, defend and negotiate from a should-cost model for real purchased components.
Expected Learning Outcomes
Estimate material and process cost from component drawings, commodity indices and manufacturing routes.
Identify which cost element explains most of the gap between a should-cost estimate and a supplier's quotation.
Distinguish genuine cost differences from margin or overhead assumptions worth challenging in negotiation.
Validate and refine a cost model against actual negotiated outcomes over time.
Negotiate from a should-cost position that opens a cost conversation rather than a price argument.
Feed should-cost insight into supplier selection, design decisions and category strategy.
Who Should Attend
Category managers and buyers negotiating purchased components with manufacturing suppliers.
Cost engineers and should-cost analysts supporting sourcing decisions.
Supplier quality and development engineers assessing supplier quotations.
Strategic sourcing specialists building cost models for component families.
Procurement analysts responsible for validating supplier price increase requests.
Design engineers who need to understand how design choices drive purchased component cost.
Course Modules
Select any module to see its sessions and points.
01Foundations of Should-Cost Modelling
2 sessions · 8 points
Session 1What a Should-Cost Model Estimates and Why
- Define should-cost modelling as an independent estimate of what a component ought to cost to produce, built from first principles rather than from historical prices.
- Distinguish should-cost analysis from price benchmarking, and explain why the two techniques answer different negotiation questions.
- Identify the components of a cost breakdown structure: raw material, direct labour, manufacturing overhead, tooling amortisation, SG&A and margin.
- Decide which purchased components justify the effort of a should-cost model based on spend, criticality and expected negotiation leverage.
Session 2Gathering the Inputs a Should-Cost Model Needs
- Extract material grade, weight and finish from a component drawing or bill of materials as the starting point for a material cost estimate.
- Identify the manufacturing process, such as machining, injection moulding or stamping, that determines which cost model template applies.
- Source current commodity index prices for the base material rather than relying on an outdated standard cost.
- Request the supplier's assumed batch size and annual volume, since both change the tooling and overhead cost per part significantly.
02Building the Cost Breakdown
2 sessions · 8 points
Session 1Material and Process Cost Estimation
- Calculate material cost from net part weight, scrap or yield rate, and the current index price for the material grade specified.
- Estimate cycle time for a machining or moulding operation from part geometry, and convert it to a cost using a standard machine rate.
- Apply a labour rate and line efficiency assumption appropriate to the country or region where the supplier actually manufactures.
- Identify secondary operations, such as plating, heat treatment or inspection, that a cost model must add separately to the base process cost.
Session 2Tooling, Overhead and Margin Assumptions
- Amortise tooling cost over the agreed production volume and compare it with the tooling charge the supplier has quoted separately.
- Apply a manufacturing overhead rate that reflects the supplier's likely plant efficiency rather than a generic industry average.
- Apply a learning curve to unit cost for a new part where production volume is expected to ramp up over several quarters.
- Benchmark the supplier's implied margin against a reasonable range for the component category and manufacturing region.
03Comparing Should-Cost to Quoted Price
2 sessions · 8 points
Session 1Gap Analysis Between Should-Cost and Quotation
- Line up the should-cost model against the supplier's quotation, cost element by cost element, rather than comparing only the totals.
- Identify which cost element accounts for most of the gap between the should-cost estimate and the quoted price.
- Distinguish a genuine cost difference, such as a different process route, from a margin or overhead assumption worth challenging.
- Recognise the limits of a should-cost model and avoid presenting an estimate as more precise than its inputs support.
Session 2Validating and Refining the Model
- Compare should-cost estimates against actual quotes won or lost over time to calibrate the model's machine rates and overheads.
- Ask a supplier open questions about their process route to test whether the should-cost model's process assumption is correct.
- Adjust a cost estimating relationship, such as cost per kilogram by material family, as new component data becomes available.
- Document the assumptions behind a should-cost model so a colleague can reproduce or challenge the result later.
04Using Should-Cost Models in Negotiation and Sourcing
2 sessions · 8 points
Session 1Negotiating from a Should-Cost Position
- Open a cost-based negotiation by discussing cost drivers and process assumptions rather than leading with the target price.
- Present a should-cost gap to a supplier in a way that invites explanation rather than accusation, preserving the relationship.
- Use should-cost evidence to evaluate a supplier's request for a price increase against a genuine change in material index cost.
- Set a target price range from the should-cost model that gives the negotiator room to concede without falling below a defensible floor.
Session 2Embedding Should-Costing in Category and Design Decisions
- Feed should-cost insight into early supplier selection so sourcing decisions are not based on quoted price alone.
- Share should-cost findings with design engineers to highlight cost drivers that a design change could reduce.
- Build a should-cost model into the category strategy for a component family so it can be reused across similar parts.
- Track should-cost accuracy against negotiated outcomes as a measure of the category team's cost analysis capability.
What the participant receives
4 course modules
A structured syllabus
8 training sessions
across 5 days
32 detailed points
Applied, detailed content
Accredited attendance certificate
On completing the programme
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