Page 3: Pricing
The Commercial directorate within Military Aircraft Division is responsible for the generation of sales campaigns, preparation of contracts, contract negotiation, contract administration, production of estimates and pricing analysis, as well as the preparation and management of industrial collaboration and offset strategies. As the commercial environment becomes increasingly competitive, the need for sound estimating judgement in balancing conflicting requirements of affordability and profitability become ever more onerous.
It is important to understand the overall process from receipt of the request for price to the delivery of a product to a Customer. Within this case study, we will focus on the manufacturing cycle and the associated costs for the manufacture and supply of Wing Rib Assembly kits.
The first stage is developing the manufacturing process, associated tooling methodologies and identifying raw material requirements for all components within the assembly. There are two elements to consider:
- Non recurring costs;
- Recurring costs.
Non recurring costs refer to the start up costs and usually include items such as the design and the manufacture of specialist tooling which is a one-off cost prior to commencement of the component production manufacturing phase
The recurring element refers to the specific component manufacture costs and relates to the quantity per aircraft set. Production engineering break out the individual parts of the wing track assembly and plan the sequence of events and operations to convert the raw material into the finished components. A planning document holds various information specific to the part. This ensures that the format is consistent across all the parts. Its prime responsibility is to provide an accurate best practice method of manufacture for all processes. Best practice refers to the optimum method of manufacture to ensure British Aerospace retains its competitive edge in the marketplace.
Recurring costs within the manufacture process
Raw material is purchased in a configuration suitable for loading on to the PRIME machine - Automax III The billet condition of supply has been established via a ‘Make’ or ‘Buy’ exercise. The relatively ‘low value’ processes of shaping, drilling and tapping has been proved most cost-effective when performed by the material supplier.
Material costs are a fairly straightforward. The major cost driver within the assembly is the Aluminium Rib which constitutes 80% of the total material cost. In this case, aluminium billet is a relatively routine purchase. Values have to be agreed with the supplier covering the drilling and tapping of holes in conjunction with the surfacing and shaping of the billet. This will result in increased costs being agreed for work over and above the raw material costs, which are calculated on current market prices of £s per kg.