Purchased parts are usually estimated based on historical purchase orders, choosing the best combination of a fairly recent historical purchase order for a buy-qty roughly equivalent to the lot-size or quantity of parts needed in this new proposal. All historical purchased orders for the same part code or similar-to part are analyzed one by one:

• A confidence score is derived for each historical purchase order based on date and quantity, with the historical buy quantity being the sum of any line items in this purchase order for that part number. The historical purchase order with the highest confidence is selected as the source
• This historical purchase order's unit cost is adjusted for inflation from the date of the historical buy until today's date. Inflation factors are maintained for an inflation index on an annual basis with the inflation factors for the first and last years being pro-rated
  • For example if the annual inflation is 2% and the historical purchase order is from June 2014 as compared to today's date of May 2019, then the unit cost of the historical source is adjusted by an "inflation factor" of: 1.01 x 1.02 x 1.02 x 1.02 x 1.02 x 1.0833 = 1.102 for the six years from June 2014 to May 2019 inclusive
  • Material estimates are stored in net present value or NPV. Escalation is used to derive future-date costs
• A quantity adjustment scale similar to the one shown below is then applied to the unit cost, to derive a "quantity adjustment factor". A quantity ratio or quantity score is calculated as historical order quantity divided by the new proposed qty or lot-size. The quantity adjustment factor or QAF is then read from the table below based on this ratio
  • For example if 100 pieces are required for the new proposal and the best-fit historical purchase order was for 40 pieces then the quantity ratio is 40% resulting in a quantity adjustment factor or QAF of 0.9. The 0.9 factor indicates that a 10% price-break or volume discount is anticipated under this scenario
  • Conversely if the new proposal was for 10 pieces only with the same historical purchase order the quantity ratio would be 400% resulting in a QAF of 1.2. This indicates a 20% unit cost increase is anticipated due to purchasing the smaller quantity
  • The QAF does not have to be calculated based on the table below, you can work with your implementation consultant to set up any scales and quantity adjustment factors desired, including linear and logarithmic scales. You can set up multiple different QAF scales and assign the most appropriate one to each product or service you are purchasing, based on commodity code

To be more accurate, purchased parts are estimated based on a variety of estimating sources and source data tables - defined in the estimating method - with each source analysed in turn to see if a source document can be found with a confidence score above the threshold below which the next possible source is analyzed.  Purchase order history is a very common source, however you may also set up the system to consider vendor quotations, vendor contracts or agreements and even manual cost estimates.

You can view the results of a purchased part estimate by double-clicking on any record in the consolidated material list, or by clicking on the pencil. If the part is purchased the information below will appear.

1. Historical purchase orders for this part are displayed in a chart based on X-axis as the quantity or lot-size ordered vs. the Y-axis as the unit cost or adjusted unit cost of that purchase. The size of each circle or plot represents how recent the purchase order is, with more recent historical purchase orders drawn with larger diameter circles
2. By default the adjusted unit cost or source document unit cost x complexity x inflation factor x quantity adjustment factor is plotted, however by checking the "unit cost" radio button at the top you can see all the historical purchase orders arranged vertically on the basis of raw unit cost without adjustment
3. Each purchase order in the chart is also displayed in the table below, where you can add/hide columns and sort. The purchase order with the highest confidence (or most recent purchase order if more than one shares the same confidence score) is normally selected and chosen as the source document, as explained above
   • You can change which purchase order is to be used as the source document for this part by checking the "Use" box
4. The inflation adjustment and quantity adjustment factors are calculated for every historical purchase order as outlined above. The adjusted unit cost of each historical purchase order is based on the age and buy-quantity of that purchase order as compared to the new part requirement
5. The complexity or similar to factor which comes from the bill of material can be manually edited here for any source. The adjusted unit cost takes this factor into account so in effect adjusted unit cost = unit cost x inflation factor x QAF x complexity factor.
6. You can modify the estimating source by selected a different source, such as Vendor Quotation, Vendor ROM or Rough Order of Magnitude, Standard material master Cost or a manual Cost Estimate. Changing the estimating source.
   1. Automatically adjusts the confidence score
   2. Allows you to manually input the unit cost - unless unit cost is read from the product or service master if source is based on Standard Cost
   3. Adds or hides up to four additional fields to capture key information about that source such as the vendor quotation number, date and quantity used
   4. Calculates the inflation and quantity adjustment factors based on the new source document date and quantity. You can also edit both the inflation and quantity adjustment factors manually

Click on CONFIRM button to save your changes.

The ADDITIONAL DATA tab allows you to edit other key information about this purchased part material cost proposal, as shown below.

1. The part number or code and description of the part used for estimating or similar-to part is displayed below. These come from the bill of material and cannot be edited here
2. The description to the right, while it also defaults from the part code, is the description of what you are buying. If you are estimating the cost for a new part (not yet designed) which is similar-to an existing part then enter the description of the new part here or in the proposal bill of material (BOM), while selecting the original part you need to pull purchasing history from. This is recommended because a new part - even if a part number is set up - has no purchasing history
3. The complexity factor is the ratio of cost and complexity of the new part vs. the similar-to, and comes from the proposal BOM but can be edited here. The realization factor is normally only used for make-parts and represents the efficiency of the group producing that part
4. You can see if this is a purchased or in-house manufactured part. Parts 'manufactured at a vendor' are purchased but still have a BOM
5. The estimating source, derived based on the part's estimating method as explained above, can be edited here similar to the COST ESTIMATE tab
   • The additional data fields to capture source-specific information do not show and hide in this tab, only in the COST ESTIMATE tab
6. The total quantity of parts proposed, derived from the quotation line items or BOM components and the lot-size or quantity rule, is displayed
   • If you maintained a scrap usage factor in the BOM then the quantity of requirements are increased by 1 + scrap %
   • The requirement date for the earliest BOM requirement is adopted, unless adjusted by a material cost proposal distribution curve
7. The adjusted unit cost is the original unit cost x inflation factor x complexity x QAF. Extended cost is simply unit cost x quantity
8. The SAP plant or company or site buying this part and cost center are optional fields. They do not impact the cost estimate. The WBS assigned to the proposal line item or BOM component is also displayed here, representing where costs will be booked. Change the WBS by selecting a new WBS at or under the same basis of estimate (BOE) WBS
9. Last but not least, any change to this proposal checks the box to "Retain unit cost and costing source document"
   • Checking this box means that your changes will be saved and copied forward to any purchased part proposals when you click on Update & Cost Consolidated BOM in future, even if the bill of material requirement dates and quantities have changed
   • Technically, estimates with retained unit cost are carried forward provided the new requirements are for the same BOE, part number, estimating method, optional phase or item, supply site and the same description in case of a similar-to. Retained unit costs for the same WBS are adopted in preference, though costs are retained even if the assigned WBS changes,
   • Unchecking this box means that next time you update & cost the consolidated BOM any manual edits will be lost and replaced by the highest confidence scoring historical purchase order, or no source document is found, depending on how your estimating method is set up.

It can be assumed for the majority of purchased part that payments will be made on the requirement date (item 6 above), plus any payment terms assigned to the supplier. It can be useful to manage specific payment milestones for very expensive purchased assemblies, to better predict cashflows. To do this click on the PAYMENTS tab and enter one or more payments as shown below.

1. Use the + and - to add or delete a payment, with the due date being the payment date
2. Enter the amount of each milestone, making that the total for all the milestones adds up to the total adjusted cost of the purchased part lot
3. If you check the auto-box and show a column which is hidden below for percentage, you can maintain the amount as a % of the purchased part lot. Any future changes in adjusted cost will cause automatic payment milestones to pro-rate accordingly
4. Optionally enter payment remarks. Remember this is only a cost estimate not an actual purchasing agreement.