Quick Answer
Should-cost analysis works out what a part should cost to make. It builds the cost from the bottom up, using material, process, labor, overhead, and tooling, independent of any supplier quote. The model shows the gap between the quote and the should-cost, and the cost driver behind it. Goken builds these models even when no BOM, CAD data, or supplier documentation exists. Closing the gap through redesign is a separate service called Value Engineering.
The Supplier Quote Is Only a Starting Position
Most supplier negotiations run on one number: the quote. Procurement pushes it down a few points. The supplier gives a few points back. The supplier still chose the number, with its own margin, assumptions, and legacy pricing built in.
A should-cost model changes what gets negotiated. Both sides work from an independent estimate built from the geometry of the part and its manufacturing route. Once the model exists, the quote becomes one line to explain against it.
What Should-Cost Analysis Is and Where It Stops
Should-cost analysis tests whether the current cost of a supplier reflects efficient operation. This principle sits in U.S. federal procurement law. The Federal Acquisition Regulation defines a should-cost review as an analysis of the economy and efficiency of the workforce, methods, materials, equipment, and management of a contractor (FAR 15.407-4).
The commercial principle is the same. A supplier quote carries the inefficiencies of the supplier with it, and building the cost from the part up is the way to see them.
A should-cost model stops at the number and the gap. It shows what a part should cost, what it costs today, and which driver explains the difference: material spec, process choice, region, or cycle time. Design changes, material substitution, and part simplification belong to Value Analysis and Value Engineering (VAVE), which Goken scopes as a separate engagement on request. The Goken cost engineering services cover both.
The Five Inputs of a Should-Cost Model
Goken starts from the CAD, drawings, and specifications where they exist. The team selects the manufacturing method that the geometry calls for, then builds the cost from five inputs:
- Material: raw material spec, grade, and form, priced at current market base rates. This is usually the largest line, and an old rate carried forward is the easiest error to make.
- Process: the actual sequence of operations the geometry needs, with real cycle and setup times. Laser cutting versus shearing, drilling, and piercing changes the result materially.
- Labor: time on each operation at the regional labor rate, tied to measured machine time.
- Overhead: plant burden, utilities, indirect cost, and a reasonable margin. A quote most often hides its cushion here.
- Tooling: dedicated tools, dies, and fixtures spread over volume. Tooling raises unit cost at low volume and cuts it sharply at scale.
Logistics and packaging are added where they affect the number, especially in a regional comparison. The goal is a line-item structure that lets a buyer and a supplier discuss a specific driver with evidence.
Should-Cost Findings from Goken Engagements
Results vary by part, commodity, and how far a quote drifted
from an efficient cost. None of these figures is a guarantee for another part.
Engagement | What the should-cost model found | Result |
Machining and sheet metal component | Raw material priced to an outdated, low-volume supply agreement. Process costed at standard cycle times with no measured data. | Should-cost landed 53% below the target cost of the client, fully explained without a design change |
Gas control valve PCB assembly | No BOM existed for the board. Goken rebuilt it from a physical teardown before running the should-cost. | Full should-cost baseline delivered where none existed |
Elevator cabinet (GI sheet, fabrication) | No BOM existed for the assembly. | Hierarchy BOM built from scratch, with should-cost models for 100+ individual parts |
Compressor crankcase (grey cast iron, casting) | Supplier cost ran above the should-cost baseline. | Modeled across three regions: China, Brazil, Eastern Europe |
Inspection system skid (engineered plastic, injection molding) | The client needed a regional comparison alongside the baseline. | Modeled across six regions: Germany, USA, Mexico, China, Eastern Europe, Turkey |
Escalator structural modules | The should-cost baseline set the target for a later, separate Value Engineering | 10% minimum savings target against the existing supplier cost |
Industries Covered
Goken runs should-cost programs on casting, injection molding, stamping, fabrication, and machined components for clients in aerospace, mobility, manufacturing, medical technology, and energy.
How to Run a Should-Cost Check on One Part
A first pass can start on a single high-spend part.
- Pick a part with high annual spend, a stable design, and a quote that no one has built up from scratch. Gather the CAD, drawings, specifications, current volume, and the dated quote.
- Re-price the raw material at current base rates and note the difference from the rate in any existing agreement.
- List the operations the geometry needs, and check whether a cheaper process meets the same geometry. Use measured cycle and setup times where they exist.
- Add labor, overhead, tooling, and a reasonable margin to build the full line-item should-cost.
- Compare the result with the quote line by line, then take the lines that disagree to the supplier. That conversation is where should-cost analysis earns its keep.
Limits of Should-Cost Analysis
A should-cost model is a rigorous estimate, and no model guarantees a price. It depends on the quality of the geometry and the assumptions behind it, so incomplete drawings or a wrong volume assumption will skew the result in the same direction. A number below the quote must be defended line by line before a supplier accepts it, and a 53% gap needs full line-by-line support. Savings vary widely by commodity and by how far a quote drifted. The model supports the supplier relationship by giving both sides a factual basis.
Related Reading
For the procurement angle in more depth, see Negotiate Against What the Part Costs, Not What the Supplier Quoted.
If you have a high spend part with a quote that you cannot explain line by line, talk to the Goken cost engineering team.
Sources cited: Federal Acquisition Regulation 15.407-4, Should-Cost Review; Defense Acquisition University, Acquipedia: Should Cost (add URL before publish).
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