GlossaryKind of term: Cost and economicsShould-cost
What is should-cost?
Should-cost is a bottom-up estimate of what a part ought to cost when produced efficiently, usually prepared by or for the buying side.
Where a price comparison looks only at earlier prices, should-cost works through the individual cost elements: material, operations, setup and subcontracting. It is usually drawn up on the buying side, often by the customer's cost engineer, to test quotes, compare suppliers or drive design decisions on cost. The result is usually a price: the estimated cost plus assumed mark-ups for overhead and profit. It remains an advance estimate, not an actual cost.
What does should-cost depend on?
A should-cost model works with material, process and setup times per operation, machine and labour rates, scrap, finishing and mark-ups. The times come from a parametric model, from comparable parts or from the analyst's own process plan. The result depends on the assumptions: machine class, route and setups, batch size, how setup time is spread over the batch, whether material is costed on net or gross size and at what price, and regional rates. A model can leave out items such as measuring time, programming or first article inspection, and it can also assume a more efficient route than yours.
How does should-cost work in practice?
A should-cost analysis usually comes up during price negotiation, alongside your quote. A gap is easiest to discuss when you can back up your own price item by item. It often lies in the assumptions, such as batch size, an extra setup for an angled hole, inspection time for tight position tolerances or a subcontracted finish. Sometimes the model shows a better route. Part of the gap can also come from choices the customer can revisit, such as a wider tolerance or a larger quantity.
What is should-cost often confused with?
Should-cost is not a target price: the target price is the figure the customer is aiming for, and it may come from a budget, the current supplier's price or a should-cost analysis. Nor is it your own cost build-up: that uses your machines, route and rates, while should-cost uses the assumptions of whoever built the model. And it is not a post-calculation: should-cost estimates beforehand, while the post-calculation compares the actual hours and costs with the estimate afterwards.
How do you see should-cost in Blake?
For milled and turned parts, the cost estimate in Blake is built from separate lines for material, machining, finishing, setup and programming, per piece and per batch, with your own hourly rate per machine and subcontracted operations as their own line. The result is labelled as an estimate, so you can set a should-cost analysis against your own build-up line by line. When you adjust an estimate line, you record the reason; a revised price becomes a new quote version. More on estimating.
Frequently asked questions
How should I respond to a customer's should-cost analysis?
Set it against your cost build-up line by line and find where the assumptions differ: batch size, route, setups, material, inspection time, subcontracting. Back up the items where you come out higher. If the model's route works in your shop, revise route and price.
Why is the should-cost figure often below my quote?
Typically the model assumes a larger batch, a more efficient route, lower rates or lower mark-ups, or it leaves out items such as inspection and programming. On small batches with tight tolerances, those items can carry real weight.
Should I share my cost breakdown with the customer?
That is your call, unless the contract includes an open-book arrangement. Times and amounts per operation together reveal your hourly rate, so choose which of the two you share. A breakdown by item often keeps the conversation more factual than a single total.