What's new
What's new

Reverse engineer replacement part cost?

mark costello

Stainless
Joined
Jun 25, 2001
Location
lancaster,ohio.43130
I have a customer that needs a replacement part made. He needs one or two plus several of His customers may want one also.The cost of the part is $450, minimal cost of less than $75 in material. After getting setup, time cost would be 7 hours time invested. Is there a common ratio that is reasonable to expect to charge for the price or strictly time + materials? If He would ask what I have in the part I would not disclose that, as it's not His business what I make on the hour. If One would want to buy a new car You don't get to ask the Manufacturer what they have in time and materials. I realize the burden rate would not be one of My best money makers, but bringing in something when things are slow is better than cleaning up the shop, I would rather be making chips. Advice appreciated, Thanks.
 
Adding more details, He wants to mark up the parts to make some profit, so the delivered cost must make it attractive to the final customer. I had a friend in the past whom I can not contact anymore that used to do this stuff all the time. If I remember correctly I thought He said 2/3 rd's cost of a new price was fair because overhead would be lower and the engineering was already done. Advice?
 
Please clarify; Is $450 what a new OEM part costs or what you're charging your customer or what your customer intends to sell it for?

$450-$75=$375
$375/7hrs.=$53.57/hr.
 
$450 is Oem cost. Profit from first part has paid for the material for the next 2 parts with a little profit also, naturally the gross profit comes when the last part is sold. Expect several more after that.
 
I don't know what He intends to sell it for, if it would be to close to OEM cost they would probably go there.One too many fingers in the pie, but that is a common thing in this business.
 
Rule of thumb is 45%.

Always ask for a target price ( it might surprise you what they are willing to pay)

It is cheaper to watch soap operas than to work at a loss.
 
I have a customer that needs a replacement part made. He needs one or two plus several of His customers may want one also.The cost of the part is $450, minimal cost of less than $75 in material. After getting setup, time cost would be 7 hours time invested. Is there a common ratio that is reasonable to expect to charge for the price or strictly time + materials? If He would ask what I have in the part I would not disclose that, as it's not His business what I make on the hour. If One would want to buy a new car You don't get to ask the Manufacturer what they have in time and materials. I realize the burden rate would not be one of My best money makers, but bringing in something when things are slow is better than cleaning up the shop, I would rather be making chips. Advice appreciated, Thanks.
.
what customer might be thinking. i worked as a maintenance machinist as well as a field machinist or machine builder for many decades. my group leader was in charge of maintenance budget. he would calculate
.
1) maintenance machinist is already paid for the whole week on maintenance budget. if any maintenance machinist had time free or caught up with work to make replacement parts thursday and friday i did this 98% of the time. making replacement parts was considered just cost of material and tooling, i had a backlog of easily 6 months work
.
2) some parts i did not have the machines to best make many parts. it was out sourced to a outside machine shops many times.
.
3) it was normal for me to spend 2 to 10 times longer to make a parts as i did not have the best shop equipment. for example can only go so fast on 2 hp machines
.
so when asking outside shop to make parts if they said $1000. to make 10 parts the group leader in charge of budget thinks.
.
how fast do i need the parts made ?
.
how good a quality level do i really need ?
.
can i make parts out of scrap material literally in the recycle bin and use normal tools and tooling the are currently in maintenance shop ?
.
do i need a drawing made ? or can maintenance machinist do it himself without charging me $1000. for it ?
.
if outside shop quoted $1000 to make 10 parts and maintenance machinist could make 1 part a week costing $20 in material and tooling i usually made the parts to save money. i would not get upset with customer asking how much questions. it is normal for a customer trying to stay within a budget.
,
i would not think for a second you are a sole supplier of parts for a customer. you are most likely one of many parts suppliers. i made new replacement parts literally by the many thousands over the years. reverse engineering some call it. my boss just use to say here is old part make me another one not worn out. go figure it out yourself how to do it and do it as cheaply possible even if it takes 10x longer than a outside machine shop
 
In this area of the world the customer is the sole supplier, main supplier is only a long distance call away, if they want to call. Information as to target price is not forth coming, as of now.
 
it is routine to have a machine part supplied originally from a company on the other side of the world. often have to decide is it worth getting a part made from far away or can it be made locally.
.
i even had locally made parts not made too good the first time and they had to be made a few times to get it correct. cost for any part is a big deal for companies staying in a budget. i sometimes made replacement parts AND ordered parts from a company on the other side of the world depending on how fast parts were needed.
.
i use to call it having a backup plan or 2nd source of parts in case something did not work out as planned
 
Adding more details, He wants to mark up the parts to make some profit, so the delivered cost must make it attractive to the final customer. I had a friend in the past whom I can not contact anymore that used to do this stuff all the time. If I remember correctly I thought He said 2/3 rd's cost of a new price was fair because overhead would be lower and the engineering was already done. Advice?

Price of raw materials is irrelevant unless you are just passing along raw stock at a markup. The price that the OEM charges is also irrelevant at determining your costs. Your costs are your costs. Your ingenuity is your ingenuity. Plenty of times it is entirely possible to beat the retail price of an OEM part, because of the markup costs applied to that part along its way to the dealer. That is your advantage. No way would I be 'locked in' to charging less than 100% of retail cost just because of some inane formula.

Once you quote, then the name of the game becomes to undercut yourself on your quote (through smart manufacturing) so you can really make money. No customer is truly thankful that you bust your ass to give them a cheap price so they can turn around and mark it up. Get what you need and feel is fair for your time and trouble.
 
how a part is made is important. i had quote to laser cut a sheet of plastic into 10 pieces for $1000.
.
my boss ordered the plastic for $100 and had me go to a sheet metal shear and see if it would cut/shear ok and it did it about 2 minutes time. just saying i have seen parts made on a hydraulic iron worker shearing to length and punching holes through it at 5 times the speed of sawing and drilling
 
I have a customer that needs a replacement part made. He needs one or two plus several of His customers may want one also.The cost of the part is $450, minimal cost of less than $75 in material. After getting setup, time cost would be 7 hours time invested. Is there a common ratio that is reasonable to expect to charge for the price or strictly time + materials? If He would ask what I have in the part I would not disclose that, as it's not His business what I make on the hour. If One would want to buy a new car You don't get to ask the Manufacturer what they have in time and materials. I realize the burden rate would not be one of My best money makers, but bringing in something when things are slow is better than cleaning up the shop, I would rather be making chips. Advice appreciated, Thanks.

If the retail rubdown of the replacement part is $450, my guess the OEM manufacturing cost is less than $100, possibly less than $50. Your material cost is to high and your process to inefficient to make this part to compete with the OEM.

I'd say Heavey is pretty close with your price target being 45% of OEM. Add shipping, give the stocking middle man a 50% markup, and the cost of your "aftermarket" is 75% of new.
 
Extropic nails it. If you can work for $53 an hour, do it. If that's not enough, ditch the job.

Generally, the more part somebody wants, the cheaper it gets. Worst possible cost to them is one part. You are going to have to nail them for setup, tooling and material. As I told the guy that wanted a certain assembly made... I can make you one for $3,000 or 100 for $3,500.
 
Adding more details, He wants to mark up the parts to make some profit, so the delivered cost must make it attractive to the final customer. I had a friend in the past whom I can not contact anymore that used to do this stuff all the time. If I remember correctly I thought He said 2/3 rd's cost of a new price was fair because overhead would be lower and the engineering was already done. Advice?

I more or less agree with HuFlung's point; your costs are what they are. If I were doing that sort of work, I would simply assess it in light of what the (your) customer will pay you for the work. His profit margin is something HE needs to be comfortable with, and if there is haggling over the cost to produce the part, it is up to you to decide whether the do the job or not. Pretty simple in my book.

It's a somewhat different story if you are planning to make a volume business out of reverse-engineering OEM parts and supplying them to a lot of distribution outlets; you will probably need to decide on a costing structure that is fairly consistent. I suspect it's too early for that from what you're doing at the moment.
 
You never make anything you can go buy.

I disagree. Our company did reverse engineering on hundreds of parts for commercially purchased machinery. We had to show a marked decrease in overall operating costs to justify reverse engineering a part. Many times cost of the part was a small part of the equation. Often times service life and labor cost to replace parts trumped the actual cost of the part.

If the service life could be increased by 50% even if the part cost was the same as the original there would be a 50% overall savings in operating cost for that part. Many times labor cost involved to replace a part was also a prime concern. If the original part required 8-10 hours for the major disassembly of a machine and the new part could be replaced in a matter of minutes the new part would be justified even if it cost more than the original.

If you're just replacing the original part with one of the same construction with no expectation of increased service life or ease of replacement I would think you would have to beat the current cost by 1/3 to expect end users to take the chance on using your part. If you can increase the service life or lower the machine downtime by 30% or more I think you can charge the same or slightly more than the original parts. As a side benefit the customer may be able to decrease inventory cost by having a lower part cost, or need to stock fewer parts due to the increased service life.

Keep in mind the end user is interested in lowering their overall production costs. It has to be done by decreasing parts cost, increasing service life, or decreasing downtime.
 
1. Nail down the quantity. Then divide your labor and materials cost by that number. Add any profit you wish. You can use an add-on amount for additional items after that initial order: it does not have to be less than the initial price for each one.

2. DO consider what kind of warranty you are willing to supply with these parts. How long? What defects are covered? Which are not. DO discuss this in detail with the customer. Do not allow him or any of the others who will be getting them to think they have any complaints that you are not willing to honor.

Consider just who is responsible for the specs of this part. If he gives you a drawing, then tell him you will make it to the drawing and you guarantee NOTHING ELSE. It is his responsibility for it to work properly if it is made to HIS drawing.

If he just gives you the part and expects YOU to reverse engineer it, then I would charge AT LEAST double the sum of materials, time, and profit as you may have to make them a second time. Perhaps even a third. Oh, and do include the engineering time in that total, not just the shop time.

And consider any safety aspects. If you make it to his drawing, then he should be responsible for it's use, but if you reverse engineer it then you assume additional responsibility. Do you have any insurance that would cover injury or death due to malfunction of this part?

In general, make sure that you can not lose under any circumstances unless you are willing to take that risk.
 
I am no lawyer but I have to wonder about your liability. If your replacement looks identical to the original you could be on the hook for any failures of that part in the world. It would be up to you to prove it was not made by you. If you are stamping yours as not OEM made then you are also up for a lawsuit if yours fails. Can you prove yours is identical to OEM as far as tolerances, heat treat, etc. Why did it fail was it poor design or poor copying?
Bill D.
 








 
Back
Top