WHITE PAPER

SHOULD COSTING ON A LARGE SCALE

WITH FAST TURNAROUND
 Executive Summary Current approaches and process sequences and supply chain
management (SCM) strategies.
challenges
Globalization and advances in
Should costing is a scientific technique that 2. Quick estimate – This costing approach
manufacturing are forcing manufacturers
can determine the manufacturing cost of uses empirical methods (analogous,
to review and reduce the cost of
any part or product with respect to various trends or regression analysis) to
manufacturing the products. There is a
cost components such as raw materials, estimate the rough order of magnitude
need to identify opportunities for cost
labor, equipment, tooling and production (ROM) that is needed to determine the
reduction through value engineering and
overheads. Typically product should cost cost for a large number of parts within
sourcing strategies. Here, should costing
estimation leverages two traditional a short time. It allows users to estimate
– the ability to determine a fair and
approaches: cost through limited engineering inputs,
reasonable price for parts – is emerging
as a critical source of data to improve thereby reducing the effort spent in
1. Detailed costing –This is a feature- developing cost estimates. However, it
the pursuit of these opportunities.
based costing that uses commercial requires a large set of historical data as
Unfortunately, traditional should costing
off-the-shelf (COTS) software or Tools well as expert judgment.
approaches require considerable amount
and templates developed in-house.
of effort and experienced personnel
While it provides high accuracy and Traditional approaches have some
involvement to derive accurate product
detailed breakdown of cost, it requires a limitations for large scale implementation
costing, leading to scalability challenges
thorough understanding of engineering with fast turnaround as shown in table 1.
for large-scale implementation.
requirements, manufacturing
This paper elucidates an innovative
should costing approach to overcome
the challenges. Advances in machine
learning techniques and analytical Detailed Costing Quick Estimate
frameworks are leveraged to develop
intelligent cost models and improved
interpretation of the cost estimates.
The approach encompassing the new
cost models, manufacturing process Availability of large number of input Less accuracy as only few
guidelines, exhaustive database, data, its collation and management parameters that impact cost are
and process automation allows used in prediction
implementation of should costing at a
large scale in a short span of time.
Requires sizeable resources such as Predicted cost is sensitive to the
tools, infrastructure and a skilled parameters selected
workforce

Need for tailor-made templates for Laborious process for parameter

various manufacturing processes inclusion/update

Consistency in costing reports due

to dependency on multiple Lack of standardization across
variables such as geography, labor manufacturers and industries
rates and material rates

Extensive manual intervention and Low confidence in the predicted

high dependency on SMEs cost

Table 1: Limitations of traditional should costing approaches

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Need for a new approach
Different manufacturers, and
even different units under a
single manufacturer, use cost
estimates differently. However, the
individual detailed cost estimates
for most of the parts will satisfy the
requirements of the manufacturers
and provide better leverage during
supplier negotiations. Further,
a detailed cost estimate will
help organizations continuously
improve their sourcing strategies
such as make-or-buy decisions,
purchase consolidation, supplier
negotiations and procurement
from low-cost manufacturing
locations. Unfortunately, traditional
approaches pose challenges
to meet these expectations in
large-scale implementations with
fast turnaround necessitating
manufacturers to explore alternate
approaches.

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 Infosys cost analytics for rate information across various seamless costing processes. It allows users to:
geographies, guidelines encompassing • Build a reliable costing methodology
framework
all major manufacturing processes, and • Develop a repository of cost templates
Infosys has developed a comprehensive
automated tools/templates for large-scale based on detailed costing results
cost estimation framework that leverages
implementation. • Collate knowledge/experience to
their expertise in should costing across
design rules and guidelines for costing
various industries and well established
The Infosys cost analytics framework • Provide detailed cost reports with
costing process. When building this
establishes a robust co-working model information on each cost component to
framework, the key levers identified were
with well-defined entry and exit criteria for enable effective supplier negotiation
innovative cost models, large database

Data Capture Process Mapping

• Raw material type/Alloys • Mfg. process identification
• Eng Data: Dimensions, • Process flow/Sequence
Tolerance & Fit envisaging Finishing/Tooling
• Database: Material Req
rate/Hourly rate

Key influencers

Innovative Cost Models Guidelines

Input Consolidation Automated Detail cost
estimation model & Guide
For all manufacturing
processes: Sheet metal,
Cost Modeling
Line based Algorithmic Cost Machining, Composite,
• BOM/2D/3D Estimation (GLAnCE) Assembly • Appropriate cost model
• Categorizing/ Grouping selection
• Detail Parts/Standard Parts/ • Setup/Part complexity
Assy • Setup/Runtime estimation
Automations Database
Customer tailored Material Rates
templates, Automation Labor/machine hourly
tools and scripts Rates for each Geographies

Cost Estimate Cost Estimate

Reporting and Analytics Review

Figure 1: The Infosys cost analysis framework

The unique features of the framework such as innovative cost models, guidelines, automation, and dynamic cost database ensure minimal
manual intervention, scalability of teams and higher accuracy, thereby providing consistency and uniformity in costing.

Innovative cost models

To meet the diverse expectations of manufacturers such as fast turnaround, detailed cost breakdown, consistency and accuracy, the
cost analytics framework incorporates the following innovative cost estimation models:

Automated detailed cost estimation – This is a detailed costing approach that leverages automation at various
stages such as data capture, data entry for costing tools, knowledge templates for the manufacturing processes,
and customized report generation. It provides greater effort savings while retaining the same accuracy in
detailed costing. However, incorporating modifications require additional customization effort.

GuideLine-based Algorithmic Cost Estimation (GLAnCE) –This is a algorithmic model developed by analyzing
computed cost estimates and established guidelines that determine various cost components with minimal user
input. It helps to reduce effort and scales easily in a short span. However, it necessitates detailed reviews and
refinement on case to case basis.

Machine learning based cost estimation – Artificial neural network techniques are used to develop very quick and
accurate cost estimates. This method can be applied after large number of detailed cost estimates are available, where
selected set of input parameters are mapped to the cost components using machine learning techniques.

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Guidelines
Infosys developed exhaustive methodology documents called “Guidelines” for each of the primary
manufacturing process categories such as machining, sheet metal, composite and assembly. Guidelines
cover, various manufacturing process sequences and best-practices, material excess criteria, material
removal rate and typical set-up/run times in relation to part size and complexities. These documents are
developed by conducting rigorous analysis and leveraging SMEs’ experience. With these Guidelines, users
can follow the proper costing procedure for higher costing accuracy and uniformity.

Automation
Infosys leveraged their knowledge-based engineering (KBE) capabilities to capture the rules and knowl-
edge of cost estimation processes within a software application for the cost analytics framework. This
application is built using tools and methodologies that embed guideline requirements along with
client-specific inputs. It increases the agility of change implementation, enhances productivity and
ensures consistent outcomes across different costing teams. It helps user to interactively update and
perform what-if analysis in the cost estimate templates.

Database
Infosys has developed an exhaustive cost database for various geographies that comprises of data such as
raw material rates, machine hourly rates, and labor rates. The database is regularly updated with the latest
inputs to ensure that the most recent data is used to develop the cost estimate. Some of the major input
sources for the database are shown below:

• Quotes from • Supplier interaction • Bureau of Labor

manufacturers • OEM inputs Statistics
• Web subscription • M/C Tool price based • Supplier interaction
• Supplier interaction calculation • Research reports
• Manufacturer website • Web subscription

Material rate Machine hourly rate Labor hourly rate

Reporting
The framework enables to generate cost estimates containing a breakdown of total product cost with
various cost components for suppliers in specific geographies. The cost estimate lists out various elements
such as part attributes, material cost, manufacturing cost, processing cost, consumable cost, tooling cost
along with setup time and run time for each of the process sequences. A detailed analysis of the cost
estimate helps users identify the key cost drivers for specific groups of parts. With these insights,
manufacturers can take proactive steps to reduce cost through supplier negotiation, value engineering
and design-to-cost initiatives.

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 Case studies

A well-managed should costing solution enables continuous cost management and waste elimination, thereby improving cost efficiencies. A
set of case studies are provided where the Infosys cost analytics framework enabled manufacturers to achieve a competitive edge.

Enabling a network hardware manufacturer in design to cost initiatives

Infosys collaborated with a leading US based networking hardware and telecommunication equipment manufacturer to develop an
approach for estimating the should cost for their globally sourced parts. The solution required an approach to estimate the should cost for
both electro-mechanical parts and assemblies. Infosys leveraged the cost analytics framework and executed the program within 8 weeks for
large set of diverse products.

• Potential annual saving were tabulated enabling the manufacturer to prioritize products for negotiation
• Detailed estimates enabled customer to make effective supplier negotiation which could reduce the purchase cost by 10 to 40%
• Identified design to value initiatives to help their suppliers reduce cost of manufacturing

Accelerating the cost reduction initiatives of an aerospace manufacturer

A leading American aerospace manufacturer partnered with Infosys to develop a strategy and adopt cost estimates for a large section of their
product portfolio. The main challenge was to develop cost estimates within a short turnaround time for thousands of parts and assemblies
that were sourced from different geographies.

Infosys leveraged the cost analytics framework to:

• Develop product cost estimates with detailed breakdown of cost components to form a baseline for value engineering and design-to-
cost initiative
• Provide a large repository of cost estimates across multiple programs, enabling the client to estimate product cost during early design
stages even in the absence of detailed engineering information.
• Establish a set of process documents, guidelines and metrics that serve as standard references for future aircraft programs.

The Infosys solution helped the manufacturer to realize substantial cost savings by
• Changing sourcing locations to low cost manufacturing country
• Supplier negotiations with accurate cost estimates for each and every parts /assemblies
• Structured should costing practices within short span

Benchmarking should costing practices of an automotive manufacturer

Infosys engaged with a global leader in commercial vehicle braking, stability, suspension and transmission control manufacturer for
estimating the cost for their product ranges and benchmark their internal should costing practices within their units. The solution required
to develop part should cost, based on the most-efficient (lowest cost) manufacturing processes considering variable production volumes,
materials, and different geographies. Infosys leveraged the cost analytics framework and executed the program within 6 weeks’ time
• Cost reduction initiatives implemented by leveraging detailed costing of parts and assemblies, yielded cost savings of 25% over the
current design
• Should costing and value engineering solution enabled client to be more competitive in the entry level car segment

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Conclusion
Today, manufacturers face tremendous pressure to reduce cost. By predicting and
understanding the cost of parts and components, manufacturers will be able to identify
opportunities for cost reduction. This discipline, known as should costing, has various
traditional approaches that has some limitations to deliver beneficial outcomes for product
cost management processes in large scale with fast turnaround. To help manufacturers
achieve tangible benefits, Infosys has designed a simple and scalable cost analytics
framework to perform detailed should costing in an efficient way. It helps to optimize
the cost management strategy of new and existing products, helping manufacturers stay
competitive.

Acknowledgements

The authors would like to thank Mr. Josji T. Kanatt, (Group Project Manager, Value Engineering), Sudev P Pattathil (Group Project Manager,
Aerospace Design and cost analytics), Sivakumar M N (Senior Project Manager, Value Engineering) and Ravindra Swamy (Engineering
Manager, Aerospace and Value Engineering) for the continuous support and detailed review of the document. Thanks are due to Dr. Shama
Rao N, Mr. Divakaran V N, Mr. Madhusudanan Nair, Mr. T G A Simha, Mr. Umesha Kamath, Mr. Bharath Achyutha, Mr. Venkatesh P L, Mr. Lokesh
Prabhuswamy, for the timely guidance provided in preparing the document. The authors also would like to thank the senior management of
engineering services practice at Infosys, Mr. Sundaresh Shankaran (AVP and Practice Head, core engineering) and Mr. Raghavendra Karinja
(AVP and Group Practice Engagement Manager) for their continuous support and encouragement.

About the Authors

Mr. Kiran Hassan Jayaram

Associate Practice Engagement Manager, Engineering Services, Infosys Limited.
Kiran has over 17 Years of experience in automotive and aerospace product design and development. He is managing
customer engagements for major American Tier 1 Supplier on Design, Value Engineering and Cost Analytics projects
and is a core team member involved in architecting development of cost analytics platform and helping supply chain
to optimize the cost.

Mr. Sheshadri Ganeshaiah Uttameshwar

Senior Engineering Manager, Manufacturing and Value Engineering (VAVE) group, Infosys Limited.
Sheshadri is a mechanical engineer with over 20 years of experience in design and manufacturing, having worked
across various industries. He has worked and managed various projects that cater to design, tooling, process planning,
and NC programming for industries such as aerospace, automotive, marine, and heavy engineering. He has strong
experience in cost modeling, analytics, and value engineering.

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