The unit price worksheet: and how its misuse eradicates valuable business opportunities.

Author:Fama, Joseph
Position:FOCUS ON BUSINESS
 
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THE UNIT PRICE worksheet, or UPW, provides most EMS sales programs a platform for a precise quote in accordance with corporate cost guidelines. The presentation of the "official quotation" typically includes the UPW, which is labeled "Official Quotation," a BoM list with a breakdown of component pricing, and a general review of terms and conditions. Use of UPWs as the official quote document has become standard practice for many EMS companies. The evolution of the EMS market has turned this once internal and confidential worksheet into a widely used standard issue. Through varied economic down periods, EMS companies have been groomed to eliminate poor business decisions by positioning finance departments to take close control of the quotation process. Today we see CFOs taking a strong role in the business development process. As a result, the UPW is a tool designed for the purpose of ensuring quotes abide by pricing guidelines set by finance departments. In parallel with this dynamic, OEMs have cemented the requirement for "open book" quotations to examine the quote makeup and its cost parameters. Thus, the unit price serves two functions in its application:

* For the EMS: Derivation of the unit prices.

* For the customer: Documenting the cost variables for the purpose of open book customer inspection.

For many EMS companies, the UPW serves as the instrument for price derivation. Although the UPW is useful in structure and provides ease in calculation, the document creates a major absence of relevant business considerations, as the EMS is assessing quotes and determining the value of the potential customer. The downside of the UPW is excused either by oversight of the EMS or choice to process RFQs through a straightforward and relatively automated process.

A typical UPW is modeled to provide quantifiable calculations to develop a unit price based on the factory's internal cost structure and the cost of materials. Typically, the UPW is tweaked on occasion by corporate cost analysts to include updated costs for variables such as labor, management services, overhead and desired profit margins.

A typical UPW can be modeled as in FIGURE 1. This UPW is sometimes delivered "live" to customers. That is, it is contained in an active spreadsheet that can be updated based on changing parameter costs. With the worksheet modeled by CFO guidance, many EMS companies use the UPW as the so-called Holy Grail to calculate not only the selling price but a full breakdown of all of the overheads, manufacturing costs, management burdens and profit contribution. Using the UPW as the corporate price derivation gives the quotation process a degree of scientific validity, as well as a quick-turn result.

The automated plug-in process of developing a quotation will bring about consequences. In both my own practice, as well as instances I have viewed, there have been numerous occurrences when the UPW caused a loss of business that was valuable, or even vital, to the EMS. By holding the UPW as the sole pricing gauge, the...

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