## Should Cost Analysis for Machining and Sheet Metal: How to Close Manufacturing Cost Gaps
A supplier quote does not always reflect what a manufactured component should cost.
For manufacturers, procurement teams, and engineering organizations, an independent should cost analysis can reveal where material pricing, manufacturing processes, cycle times, and supplier assumptions are creating unnecessary cost.
In one Goken engagement involving a precision machining component and a sheet metal bracket, a bottom up should cost analysis identified a 53% gap between the supplier related cost position and the client's target. The analysis traced the difference to outdated raw material pricing and a manufacturing process that was more expensive than the component geometry required.
## What Is Should Cost Analysis?
Should cost analysis is a bottom up method for determining what a component should cost to manufacture under realistic and efficient production conditions.
Rather than starting with the supplier's quotation, the analysis rebuilds the cost from individual drivers such as:
Material
Machine time
Cycle time
Labor
Manufacturing processes
Tooling
Overhead
Production volume
The result is an independent cost baseline that procurement and engineering teams can use to evaluate supplier pricing and identify cost reduction opportunities.
## Why Machining and Sheet Metal Components Need Detailed Cost Analysis
Manufacturing cost can vary significantly depending on how a component is produced.
Two suppliers may quote substantially different prices for the same component because they use different material assumptions, machine times, process sequences, tooling strategies, or production methods.
A should cost model makes these differences visible.
For machining components, the analysis can examine material pricing, machining operations, actual cycle times, setup requirements, and machine utilization.
For sheet metal components, the analysis can evaluate material yield, cutting methods, tooling, bending, piercing, drilling, and other production operations.
This allows manufacturers to understand not only what a component costs, but why it costs that amount.
## How Goken Identified a 53% Cost Gap
The machining component in this engagement initially showed a should cost approximately 53% below the client's target. That difference required a detailed line item analysis before the cost could be accepted.
The analysis identified two major cost drivers.
First, the raw material price was based on an outdated low volume fixed here term supply agreement.
Second, process costs were based on standard assumptions rather than actual measured production times.
By rebuilding the cost from the ground up, Goken was able to identify where the gap originated.
## Repricing Raw Materials
Raw material cost can become disconnected from current market conditions when historical supplier agreements remain unchanged for extended periods.
In this case, the machining component's raw material cost was recalculated using current quarterly base rates and an index cost correction.
This produced approximately a 20% reduction in the material cost of the machining component.
The lesson is important for procurement teams.
A supplier contract may be commercially valid while the underlying cost assumptions are no longer representative of the current market.
Regular cost benchmarking can help identify these gaps.
## Using Actual Manufacturing Process Times
Manufacturing process assumptions can also create significant differences between quoted cost and should cost.
Instead of relying solely on standard or estimated cycle times, the analysis used actual cycle time data for the machining operations.
This created a more realistic basis for comparing supplier manufacturing costs.
Reevaluating the manufacturing process reduced the machining process cost by approximately 17%.
This demonstrates why should cost analysis needs manufacturing engineering expertise.
The model is only as useful as the assumptions behind it.
## Reducing Sheet Metal Cost Without Changing the Design
The sheet metal component presented a different challenge.
The client needed approximately 20% cost reduction without changing the component's form, fit, or function.
The analysis identified opportunities in both material and process cost.
The existing approach used laser cutting for the outer blank and internal holes.
Laser cutting provides flexibility, but that flexibility is not always necessary for simple, high volume geometries.
The engineering analysis identified opportunities to use:
Shearing for the outer blank
Drilling for round holes
Piercing and notching for oblong holes
Dedicated tooling instead of a flexible laser process
This changed the manufacturing sequence to better match the actual geometry of the component.
## Converting Sheet Stock to Cut To Length Material
The analysis also identified an opportunity to change the sheet material specification.
Instead of purchasing general sheet stock and performing additional cutting operations, the component could use pre slit and pre cut material.
This shifted yield optimization to the material supplier's larger scale process and removed a manual cutting operation.
The result was up to an 8% reduction in raw material cost and up to a 12% reduction in process cost for the sheet metal component.
Together, these changes achieved the client's 20% cost reduction target without changing the design, tolerances, or function of the part.
## Should Cost Analysis vs Supplier Price Negotiation
Traditional supplier negotiation starts with the supplier's quote.
Should cost analysis starts with the manufacturing economics of the component.
That distinction changes the negotiation.
Instead of asking a supplier to reduce a quoted price by a percentage, procurement can discuss specific cost drivers such as:
Material pricing
Cycle time
Machine utilization
Process selection
Tooling
Labor
Yield
Production volume
This creates a more objective basis for supplier negotiations.
## Where Manufacturing Cost Reduction Opportunities Hide
The engagement demonstrates two recurring sources of cost opportunity.
The first is outdated commercial assumptions.
A historical raw material agreement may continue to influence component pricing even after market conditions have changed.
The second is process selection.
Manufacturing processes are often selected early in product development and may not be revisited even when production volumes or component geometry change.
A process that is appropriate for low volume or complex geometry may not be the most economical option for high volume production.
## When Should Manufacturers Use Should Cost Analysis?
Should cost analysis can be particularly valuable when:
A supplier submits a significant price increase.
A component has a high annual spend.
A supplier quote appears higher than expected.
A company is preparing for sourcing negotiations.
A component is being resourced.
A manufacturing process is being changed.
Material prices have changed significantly.
A product is entering production.
A company needs to identify cost reduction opportunities without redesigning the product.
Starting with high spend machining and sheet metal components can provide a practical way to identify measurable savings opportunities.
## Building a Better Cost Baseline
Effective should cost analysis requires more than a spreadsheet.
It requires an understanding of product design, manufacturing processes, material markets, production economics, tooling, and supplier operations.
By combining these disciplines, manufacturers can create an independent cost baseline that supports procurement negotiations and engineering decisions.
The objective is not simply to find a lower price.
It is to understand what drives the cost and determine whether the current manufacturing approach represents the best economic option.
## Goken Cost Engineering and Should Cost Analysis
Goken provides cost engineering and should cost analysis support for manufacturers looking to establish independent cost baselines, evaluate supplier pricing, and identify practical manufacturing cost reduction opportunities.
Its engineering approach can analyze raw material, manufacturing processes, machine time, labor, overhead, and other cost drivers to identify where savings can be achieved.
For machining and sheet metal components, this can help procurement and engineering teams move from supplier price negotiation toward evidence based cost management.
**The goal is simple: understand what the part should cost, identify what is creating the gap, and use engineering data to close it.**