Custom Manufacturing Projects: What Costs What?

In manufacturing, each facility has different needs. Whether it is a power panel, automation control panel, or an energy storage battery system with switches, each need and wants will differ from facility to facility. 

When investing in big projects like this, it is essential to fully understand where these costs are coming from. Why invest in something if you don’t understand its true value?

At ASG, we manufacture products like power panels and automation control panels for customers who are searching for long-lasting products that maximize efficiency in their facility. Since we manufacture these products daily, we understand how important a breakdown of costs is to customers. 

When shopping for a manufacturer to custom-build power or automation control panels, it is important to know the cost breakdown.

Let’s dive into each component of cost so you can gain a deeper understanding of where these prices come from. 

Key Components of a Custom Manufacturing Project 

For custom projects, it is crucial to understand the cost components.

Direct Costs

Direct costs are defined as costs that can be traced back directly to a product, service, or cost objective. In a custom manufacturing project, you run into three main direct costs: Materials, Labor, Overhead, and other costs.

• Materials

This is often the most substantial portion of the cost. It includes all the raw materials and components required to build your custom project. 

For example, if you are looking to buy something critical to your day-to-day operation, you probably need something top-of-the-line. If it isn’t used day to day, then a less expensive option may likely suffice

• Labor

The labor cost includes the hours spent by the technicians and engineers on the project. There is a wide range of labor costs in the manufacturing industry – some as low as $25/hr and some as high as $150/hr. 

But don’t get sticker shock over higher rates. In some cases, a higher labor rate can be justified if the technicians can complete your project quicker and can bill fewer hours, keeping the cost down.

Quicker turnaround time is important for a lot of customers, especially in the manufacturing industry. If you are told you can get your project done in 10 weeks instead of 10 months, even though it is a higher labor rate, you may likely choose the quicker option.

• Overhead

The overhead costs encompass all the indirect costs associated with the production. This includes utilities, rent, and employee benefits.

Depending on the manufacturer, these are sometimes rolled into the labor rate. But this is a cost that must be accounted for. 

• Other

This area is sometimes overlooked and includes things like special packaging, inbound material, and final outbound assembly freight cost, plus extended warranties, etc if it involves automation with plc’s who is responsible for programming or startup services.

Profit Margin

Profit margin calculations usually occur after the direct costs are calculated. These can vary based on the manufacturer’s pricing strategy and your willingness to negotiate the price. However, these profit margins are not shared with you – this is only a cost for you to know is calculated when manufacturers calculate prices. 

Effective communication is a critical, yet often overlooked, component of a successful custom manufacturing project. While the various cost factors are important, strong communication throughout the process is essential for ensuring the project runs smoothly and meets the desired outcomes.

Change Orders: A Potential Cost Change

Even with a detailed cost breakdown, change orders can still occur during a custom manufacturing project. A change order refers to any alteration made to the original order after the design and price have been agreed upon and a purchase order placed.

Changes can happen for various reasons – such as an accelerated timeline, engineering modifications, or part substitutions. These changes can result in cost adjustments from the original manufacturer’s price.

It’s important to communicate openly about the potential for change orders. While cost is a critical factor, effective communication throughout the process is equally essential for ensuring a successful project outcome. Discussing the possibility of change orders upfront can help manage expectations and avoid surprises down the line.

The Importance of Client-Manufacturer Communication

In any project, communication between all parties is an essential portion that will lead to success. The relationship between the manufacturer and you will be the most important aspect in ensuring there is full transparency. 

It is important to understand that there will never be a guaranteed price for custom work. Supply chain costs go up, other options come on the market. By effectively communicating these cost variabilities throughout the project, trust is built. 

Establish Expectations with Your Manufacturer

From the start, it’s important to establish trust with your manufacturer. This begins by clearly communicating your goals for the project and setting expectations upfront.

To mitigate surprises, make sure you are aware of what has the potential to change throughout the project. Changes in timeline, engineering, or parts can all result in change orders that impact the overall cost. Being proactive about communicating the possibility of change orders is essential for maintaining trust and transparency with your manufacturer

So, what’s next for you? When you are looking into who to pick for a manufacturer, be sure you are choosing someone who will walk you through any costs that will be acquired throughout the project. Any unpredicted costs can be a big surprise, so it is important to establish that expectation early on.  

If you need some more insight into costs that are included in custom manufacturing projects or would like to chat with a manufacturer about the custom project you are looking for, you can contact us today! Though we are not the only option for your needs, we can provide you with knowledge that can help move your project in the right direction.