Contract Negotiation

In this lecture, you will get an understanding of the definitions of 3 types of contracts called Category 1,2 & 3, which will be used in all seven sections of this course.

A further brief overview of Section 1 will be given.

This lecture will guide you through the course contents,section-wise as summarised below.

Section 1= Introduction, Learning Objectives, Audience, and Benefits in 9 lectures,

Section 2=140 clauses to negotiate in Cat 1 & Cat 3 in 18 lectures,

Section 3=First Principle costing for Smarter Negotiations  (FPC) using 5 illustrations in 27 lectures

Section 4=Negotiation Strategies at the granularity level: list of 40 nos in 3 lectures,

Section 5=Risk mitigation strategies: List of 40 affecting rates & terms in 3 "Extra" lectures.

Total Lectures =60

Illustrations for demonstrating how to do the first Principle costing-FPC =5

Resource templates=16 ( 3 for 140 clauses and +13 for cost estimations using FPC )

Assignments =7

This lecture is designed to help you understand my professional profile, as a speaker.

I am a Mechanical engineer & MBA and a retired professional. I have about 20 years of hands-on Purchase/Contract negotiation experience (out of 40 years) in 3 industries;

I have published 72 videos on business ethics on my YouTube channel.

As of Nov 24 end, there is an estimated watch time of 16100 hours by my audience and  estimated  1.1 million views on my You tube channel

There are 53 articles on my website on business ethics.

My 1st book was ranked no 1 on Amazon India within 2 days of launching in June 2022.

In this lecture,  you will derive Nine (9) benefits through this course as summarised below.

1.   9 cost elements,

2. 16 resource templates ( 3 for 140 clauses + 13 for FPC costing )

3. 5 illustrations for First Principle costing-FPC

4. 140 contract clauses,

5. 53 parameters influencing clauses,

6. 40 negotiation competencies list,

7. 40 granular negotiation strategies,

8. 40 risk mitigation strategies for contract negotiation and

9. 9 ethical principles.

   
   

You will also get 7  assignments  -DIY type to gain self-confidence.

For performing FPC, you will get resource templates, along with lectures, that are ready to use/populate.

This lecture focuses on building skills-40 types for analyzing, negotiating, and finalizing contracts.

No single individual can possess all types of skills to negotiate contracts of all categories 1,2 &3 .

For negotiating logically, 40 competencies  have been classified as below: 

1. Functional -techno commercial =12

2. Pure Technical=4

3.   IT/ERP=5

4. Leadership=9

5. Legal=10

   
   

This lecture is designed to help you grasp the importance and relevance of Ethics in negotiations

The word Ethics refers to the moral principles and values that enable us to do the right things.

Nine ethical  Principles relevant to Contract negotiation are included in the video content.

By the end of this lecture, you will understand the three fundamental approaches to pricing  -strategies for contracts.
Three approaches have been highlighted below.

1. Fixed-price contracts

2 Cost-plus contracts

3 Time and material contracts

These will help you to choose which strategy to pursue for contract negotiations.

This lecture will enhance your understanding of the  need for versatility of the profiles of negotiating team members, which can enable effective contract negotiations

For negotiating contracts of Cat 1,2, and 3 types, different skill sets ( based on the inventory of 40 skills listed in lecture 5  ) are desirable to negotiate rates aggressively and enable win-win negotiations. Therefore, besides the core team, negotiators can be drawn from  teams listed at sr no 2 & 3, as invitees

1. Core Team professionals from purchase/contract 

2. Senior Management for high-value contracts

3. Subject Matter Experts (as invitees ), possessing appropriate skills out of 40 listed  in the earlier lecture

The professionals from the following background will benefit most from this course: .

1. Purchase & contract negotiation roles

2. Techno commercial persons from business functions who require cat 1,2 3 type contracts  from any Industry

3. Finance &Accounts function 

4. Legal professionals who review the contracts 

5. COO/CEO approving contracts 

6 . New Joiners in purchase & contract functions.

7 College/university students aspiring to pursue a career in Purchase /contract functions.

In this lecture, you will navigate through different types of clauses for Cat 1,2,3 types of contracts.

• 140 essential clauses for negotiating contracts : Cat 1= 50, Cat 2=25, Cat 3=90 (including cat 2)

• 53 negotiation Parameters that influence these clauses: (Cat 1=16+Cat 2=14+Cat 3=30)

• 3 resource templates

• 3 DIY Practice exercises ( @1 each for category 1, 2, 3.

They are included in 18 lectures.

This  lecture will provide you with valuable insights into 34 clauses that directly impact contract negotiations for Cat 1-type contracts and a few examples of Cat 1  contracts

a) A diagram is depicted to show all logistic elements from the vendor's premises to the buyer's end.

b) The types of  Cat 1 contracts are for :

1 Raw materials of any type, 2. Semi-finished items, 3 . Complete finished Items, 4. Consumables,5.Capital- items/Tangible assets (all types) & their maintenance spares

6. Sales promotion materials, 7.Packaging materials, 8. After-sale service Spares, 9. Non-production items like office supplies, administration items & so on

c) 34 clauses have been identified for contract negotiation under the following heads (common for domestic and import supplies:

Prices= 4

Quantity= 3

Quality=3

Design changes=3

Payment terms=2

Warranty=2

Delivery terms=6

Marine insurance=2

packing/labelling=2

Legal=7

The resource template includes the above 34 clauses common for domestic & import purchases and +16 import-related clauses and is attached in lecture 12.

In this lecture, you will journey through each of the 34 clauses  that will Prepare you to deepen your understanding of  these clauses impacting contract values and associated  fund flows "

For narrations of clauses, Please listen to the contents of the video.

These 34 clauses (out of 50 clauses) are also available in the attached resource template

In this lecture, you will journey through each of the 16 clauses that will prepare you to deepen your understanding of the clauses impacting contracts related to Imports.

Sixteen clauses for imports include the following aspects :

1. Imports -Payment currency, 2. Payment terms, 3. Imports LC, 4. LC "usance "  interest terms, 5.Quality standards, 6.Import licenses, 7.Prior certifications from regulatory bodies, 8.Inco terms(International commercial terms, 9. Pre-shipment inspections, 10. Shipping documentation, 11.External packing markings, 12.HSN Classification, 13.Custom examination, 14.Shipping & destination ports, 15.Choices of airlines & types of ships, 16.Trans-shipment & part shipment

These 16 clauses (In addition to the 34 shared in lecture  12 are  also listed in the resource template attached in  lecture 12

This lecture aims to clarify the complexities of  i) Who bears the costs   -Importer vs Exporter  and

ii) Who bears the risk of shipment -Importer vs Exporter

INCO  terms  are listed under two types of modes

A) terms for  any shipping mode (Road, Sea, Road, multimode etc )include clauses as below 

1 Ex Works (EXW),

2 Free Carrier (FCA),

3 Carriage Paid To (CPT),

4 Carriage and Insurance Paid To (CIP),

5 Delivered at Place (DAP),

6 Delivered at Place Unloaded (DPU), 

7 Delivered Duty Paid (DDP)

B) Terms for shipment by SHIP, 

1. Free Alongside Ship (FAS),

2. Free on Board (FOB),

3. Cost and Freight (CFR),

4 .Cost, Insurance, and Freight (CIF)

From costs and risk perspective perspectives, these need to be negotiated carefully

This session will provide you with valuable insights into the 16  parameters that can influence rates and terms in Cat 1 contracts.

The contents of 16 parameters are included in the video.

By the end of this lecture, you will understand examples of Category 2 contracts enabling you to identify similar contracts in your organisation .

Accordingly, you can identify similar Cat 2 contracts in your organisation and initiate actions to enhance the robustness of contract negotiation processes.

The examples below  include SITC- supply, installation, testing & commissioning

1. General purpose or special purpose or CNC Machine, SITC

2 Jacuzzi system: SITC- Penthouses

3  Boiler plant

and so on

In this lecture, you will journey through each of the 25 clauses  that will prepare you to deepen your understanding of  these clauses impacting contract rates/ terms  and associated  fund flows & project milestones."

The number of 25 Clauses relate to :

1. Rates=3

2. Payment terms=3

3. Site preparation=4

4. Project milestones=4

5 . Site management and logistics=5

6 . Other clauses=6

The highlights are included in video content and must be negotiated based on the Buyer's own budgets/ targets and comparatives drawn for each of these based on the final bid prices of each contractor.

This lecture will provide you with valuable insights into the  14 parameters that can influence rates and terms in  Cat 2 contracts.

The highlights are as below.

Material supply related =6

Installation, Testing, and commissioning- related =8

The highlights are included in video content

By the end of this lecture, you will understand examples of Category 3 contracts enabling you to identify similar contracts in your organisation .

1. Manufacturing plants for Vehicles or white goods or appliances.

2. Setting up plants for precision  components manufacturing for customers like defense etc 

3. Setting up  Power plants Type- Thermal, Hydro Power,

and so on

Accordingly, you can initiate actions to improve the robustness of contract negotiation processes.

In this lecture, you will be exploring the large variety of clauses applicable to Cat 3 type of contracts.

Ninety Important clauses that have been identified can be classified broadly under the following  heads as :

i) Scope of work, Contract Rates & payments related =31

ii) Technical-Project site management & Quality related=31

iii) Commercial-Project Insurance , welfare & safety, statutory compliances related = 23

iv) Project completion and agreement –related=5

Total=90

Please refer to the list of these clauses in the attached resource template

The highlights /narrations will be shared in the following lectures.

In this lecture, you will journey through each of the 31 clauses that will focus on equipping you with the skills to define the scope of work to be outsourced meticulously and negotiate rates and payment terms effectively 

i) Scope of work =3

ii) Rates/costs =22 (few examples below, details in video)

1 Rate for each bill of material or Bill of quantities,

2. Rates for Installation, testing, and commissioning,

3 . Rates /formulas for computing the cost of substitute items or extra items,

4. Project insurance,

5. Cost of power for work execution, installation, testing, and commissioning,

6. Cost of scaffolding and so on  up to 23 clauses

iii) Payment terms =6

Sub-total=31

For the contents of these 31 clauses, please watch the enclosed video and resource template enclosed

In this lecture, you will journey through each of the 14 technical clauses that will focus on equipping you with the skills to accomplish project milestones.

i) Site preparation =4

ii) Project milestones =6

iii) Coordination and collaboration =4

sub total=14

For the contents of these 14 clauses, please watch the enclosed video lecture and resource template enclosed

In this lecture, you will journey through each of the 17 additional technical clauses that will focus on equipping you with the skills to improve build quality-related processes and ensure meeting statutory and safety requirements for the project.

i) Site Management and Logistics =6

ii) Quality Assurance and Control =5

iii) Defects Liability =3

iv) Health, Safety, and Environmental (HSE) Compliance =3

sub total=17

For the contents of these 17 clauses, please watch the enclosed video lecture and resource template enclosed

In this lecture, you will journey through each of the 13   commercial clauses that will enable you to develop practical knowledge about risk prevention strategies and enhancing communication & reporting processes essential for large projects

i) Insurance and Indemnification =5

ii) Communication and Reporting =3

iii) Temporary Facilities and utilities=5

sub total=13

For the contents of these 13 clauses, please watch the enclosed video lecture and resource template enclosed

In this lecture, you will journey through each of the 10 more commercial clauses that will enable you to secure the performance of the project being executed and focus on empowering you to plan statutory conformance with confidence.

i) Performance Bank Guarantee =5

ii) Statutory Clearances and Compliance =5

sub total=10

For the contents of these 10 additional clauses, please watch the enclosed video lecture & refer to the resource template

Our focus in this lecture is on empowering you to confidently develop, negotiate and finalise complex contract negotiations and document these in the form of a robust agreement.

i) Project Completion & handover =1 ( It has 9 sub-clauses)

ii) Change Management =3

Agreement Preparation and signing =1 ( It has 15 sub-clauses)

sub total=5

For the contents of these 5 clauses and further (9+15) sub-clauses, please watch the enclosed video and refer to the resource template .

This session will provide you with valuable insights into the 23 parameters that can influence rates and terms in Cat 3 contracts, as summarised below.

a)Roles & responsibilities related =9   .

Client vs Contractor  vs. PMC-Project management company if engaged  for aspects like :

• Design,

• Choice of technology,

• Negotiation of rates & terms of high value,

• Quality approvals etc

  and so on

b) Material supply related ( Under the direct scope of contractor) =6

• Brands,

• Technical Specification,

• Payment terms,

• INCO terms, 

  and so on

c)Installation, Testing, and commissioning or construction-related =8

• Number of bidders, 

• financial strengths,

• location,

• long-term relationships, 

  and so on

For the contents of these 23 parameters, please watch the enclosed video lecture.

This lecture will prepare you to enhance your basic understanding of the First Principle of costing through the following inputs.

1. What is the first principal costing(FPC)?

2 . Where can FPC be used?

3. Factors influencing Rate during FPC assessment

4. Examples of bought-out materials –Cat 1

A standard resource template for FPC is enclosed depicting  10 cost elements as S3RT1 which can be referred for negotiations.

For  detailed contents, please listen to the attached video

In this lecture, we’ll delve into the following  to enable you to discover practical aspects related to FPC

a) When to use FPC ?: 9 scenarios suggested when there is an opportunity to pursue  FPC

b) When FPC may not be feasible or not worth the effort:  Negotiations for the below types in Cat 1

• Basic Raw Materials:e.g., Steel rods, billets, pig iron, etc

• very high technology materials - proprietary  materials like  -Tyres, Fuel injection pumps  PCB based parts /components, etc

• Non-production materials- off-the-shelf materials  like Administration items, IT items  like computers

c)  14 Value-added aspects/terms  that should be preferably be negotiated at  the time of egotiating rates /prices of Cat 1 contracts

For details, please listen to the content in video

In this lecture, you will get a list/matrix of 66 key manufacturing processes. These processes offer the potential to estimate costs using FPC  and will enable you to get ready to dive into the fascinating world of negotiations of Cat 1 contracts logically

66 key manufacturing processes.

a)Casting =6 types

b) Forging = 6 type

c) Machining =18 types

d) CNC machining = For all above (counted as 6 but actually many more)

e) Modern Machining =6 types

f) Electroplating =6 types

g) Heat treatment =6 types

h) Metal joining =6 types

i) Surface treatment =6 types

Please listen to the contents in the video lecture to know the names of these processes.

In this lecture, you will learn we’ll break down the the costs into 9 cost elements that will enable you to sharpen your contract negotiation skills  (for Cat 1 contracts)  while estimating costs using real-world examples.

Nine  cost elements :

1. Material Costs

2. Manpower costs

3. Plant & Machinery costs

4. Tools/Jigs, Fixtures costs

5. Manufacturing Variables costs

6. Marketing Variables Costs:

7. Overheads: As % of costs

8 . Supplier Margin: As % of costs

9 . Taxes: As per regulatory environments

To learn more about what is included in each cost element, please  listen to the video lecture

This lecture will guide you through the process of developing a standard resource template attached here for cost estimation of Cat 1 contracts.  This standard template can then be customised to develop resource templates for  Cat 1 contracts vis a vis each of the 66  manufacturing processes listed earlier.

1. Most Bought materials in the manufacturing Industry are produced using a combination of processes out of 66 shared in the earlier lecture

2. This lecture includes developing standard costing template (Basic Template S3RT1) for negotiating rates in the manufacturing industry.

3. The FPC templates will be unique for each class of BO materials, as the cost elements listed below will be unique to the 66 Processes mentioned earlier 

• types of raw materials,

• equipment,

• tools, jigs/fixtures,

• manpower skills,

• manufacturing,

• marketing variables

  Of course, Overheads, margins and taxes will be added in the template as applicable.

  To learn more about what is included in each cost element, please listen to the video lecture

This lecture focuses on building skills for analyzing, negotiating, and finalizing 4 of the cost elements (out of 9 identified earlier )  for estimating cost for  GI -(Grey iron)  castings as part 1 using the FPC approach

Part 1 -Four Cost elements

1. Raw materials

2 P&M/Equipment

3. Manpower

4. Tools, jigs & fixtures

The remaining 5 cost elements will be shared in the next lecture, 34.

All  cost elements have been populated in illustration no 1 ( using FPC) and captured in resource template attached.

Assumptions

1. Raw materials Types:

Pig Iron, Or & steel scrap, Or & GI Casting Scrap, Ferroalloys, Coke, Limestone, Sand, Binder & so on

2 P&M/Equipment types 

Cupola Furnaces, Electric Arc Furnace, Ladle Furnaces, Moulding Machines, Core Machines, Shakeout Machines, Tumbling Machines, Sand Handling Equipments, and so on

Production=10MT/day,  Working days/year=300, annual production=3000MT

Investment=Rs 400L. and Depriciation@10% , AMC @3%, Finance [email protected]%

3. Manpower :

Comprising of Foundry Engineers, Metallurgists, Quality Control Inspectors, Maintenance Technicians, and so on; Say 50 workers & working days=300/year with Cost to company @Avg Rs 25000/pm

4. Tools and Jigs & fixtures :

Tools: Hand Tools, Power Tools, Measuring and Inspection Equipments,

Jigs/fixtures: Pattern Equipment, Core Boxes, Gating and Risering Systems, Molding Boxes, Pouring Ladles, and so on

Costs: Say 4% of Investment

Resource template for FPC

The FPC working has been populated in a resource template attached with the content video, which you can easily use based on the specifications of Cat 1 GI Casting to be produced and manufacturing technology used by the foundry /vendor.

Cost estimation for GI Castings using FPC in this illustration 1  is for only 4 cost elements =Rs 48.75/kg, and more cost elements are yet to be added.

The illustration-based cost estimations have been populated in a table in the attached video to make your understanding easier.

This lecture focuses on building skills for analyzing, negotiating, and finalizing remaining 5 of the cost elements (out of 9 )  for estimating cost for  GI -(Grey iron)  castings as part 2 using the FPC approach.

Part 2 -Five cost elements

1. Manufacturing variables

2 Marketing variables

3. Overheads

4. Margins

5 Taxes

Assumptions

1. Manufacturing variables :

This included cost elements like Power, Furnace Oil, Natural Gas, Water, Compressed Air, Labor wages (Mold Makers, Core Makers, Pattern Makers, Machinists etc), QC gauges,% rejection of casting, and so on

A lump sum value has been assumed in the populated template based on  cost sheet /finacial reports of the vendor

.2 Marketing variables

This included cost elements like Packaging materials, Protective coatings, Labeling and branding, Mandatory Certification, Costs for freight, Insurance, Warranty, and so on

A lump sum value has been assumed in the populated template based on  cost sheet /financial reports of the vendor

The workings are included in the resource template attached along with the previous lecture 33 and hence not being duplicated

3. Overheads:

Based on vendor profile and cost elements, overheads  can be negotiated as % of costs or value can be ascertained

4. Margins

Based on vendor profile and Industry practice and completion, Vendor margin  can be negotiated as % of costs

5 Taxes

As per statutory regulations

Estimated costs-Part 2= cost of Manufacturing variables + Marketing variables+Overheads+ Margins+ Taxes

In our illustration  number 1 cost using FPC works out to be =Rs 14.50 /kg((9.50 +5.0) ....

Add % for (OHds+margins+taxes)

So estimated costs will be the sum of all 9 cost elements ( part 1 +part 2) as shown in  template=

Rs 63.25/kg % for OHds+margins+taxee ,based on : ( Part 1= Rs 48.75+Part 2 =Rs 14.50)

By referring to illustration 1 in the populated resource template S3RT2, you can easily estimate costs using FPC, and gain confidence to negotiate rates logically and confidently with the shortlisted bidders/vendors

The unfilled resource template in pdf format has been attached in previous lecture 33.

The illustration-based cost estimations have been populated in a table in the attached video to make your understanding easier.

This lecture focuses on building skills for analyzing, negotiating, and finalizing 4 of the cost elements (out of 9 identified earlier )  for estimating cost for  Steel forgings as part 1 using the FPC approach

Part 1 -Four Cost elements

1. Raw materials

2 P&M/Equipment

3. Manpower

4. Tools, jigs & fixtures

The remaining 5 cost elements will be shared in the next lecture, 36.

All  cost elements have been populated in illustration no 2 ( using FPC) and captured in resource template attached.

Assumptions

1. Raw materials Types:

C45 EN9 etc, SAE 8620, 20Mn Cr 5 & so on

2 P&M/Equipment types 

Forging Press, Induction Heater, Hammer etc and so on

Production=5MT/day,  Working days/year=300, annual production=1500MT

Investment=Rs 300L. and Depriciation@10% , AMC @3%, Finance cost@10 %

3. Manpower :

Comprising of Die Makers, Punch Makers, Metallurgists, Quality Control Inspectors, Maintenance Technicians, and so on and so on; Say 40 workers & working days=300/year with Cost to company @Avg Rs 25000/pm

4. Tools and Jigs & fixtures :

Tools: Hand Tools, Power Tools, Measuring and Inspection Equipments,

Jigs/fixtures: Forging Dies, Punches, Tongs, Anvils etc, and so on

Costs: Say 4% of Investment

Resource template for FPC

The FPC working has been populated in a resource template attached with the content video, which you can easily use based on the specifications of Cat 1 steel forgings to be produced and manufacturing technology used by the Forging vendor.

Cost estimation for steel forgings using FPC in this illustration 2  is for only 4 cost elements =Rs 78.40/kg, and more cost elements are yet to be added.

The illustration-based cost estimations have been populated in a table in the attached video to make your understanding easier.

This lecture focuses on building skills for analyzing, negotiating, and finalizing the remaining 5 of the cost elements (out of 9 )  for estimating the cost for steel forgings as part 2 using the FPC approach.

Part 2 -Five cost elements

This lecture includes 5 cost elements, as below and has also  been populated in illustration no 2 ( using FPC) and captured in resource template S3RT3

1. Manufacturing variables

2 Marketing variables

3. Overheads

4. Margins

5 Taxes

Assumptions

1. Manufacturing variables :

This included cost elements like Power, Furnace Oil, lubricants and coatings, Water, Compressed Air, Labor wages (Forging Press Operator, Die Setter,Furnace operator, flash remover etc), QC gauges ,% rejection of forgings and so on

A lump sum value has been assumed in the populated template based on  cost sheet /financial reports of the vendor

.2 Marketing variables

This included cost elements like Packaging materials, Protective coatings, Labeling and branding, Costs for freight, Insurance,Warranty and so on

A lump sum value has been assumed in the populated template based on  cost sheet /financial reports of the vendor

The workings are included in the resource template attached along with the previous lecture 35 and hence not being duplicated

3. Overheads:

Based on vendor profile and cost elements, overheads  can be negotiated as % of costs or value can be ascertained

4. Margins

Based on vendor profile and Industry practice and completion, Vendor margins  can be negotiated as % of costs

5 Taxes

As per statutory regulations

Estimated costs-Part 2= cost of Manufacturing variables + Marketing variables+Overheads+ Margins+ Taxes in our illustration 2 cost using FPC works out to be =Rs 13.0 /kg((7.0 +6.0) ....

Add % for (OHds+margins+taxes)

So estimated costs will be the sum of all 9 cost elements ( part 1 + part 2) as shown in S3RT3=.

Rs 91.4/kg % for OHds+margins+taxee ,based on : ( Part 1= Rs 78.4+Part 2 =Rs 13.0)

By referring to illustration 2 in the populated resource template in part 1 &2 , you can easily estimate costs using FPC, and gain confidence to negotiate rates logically and confidently with the shortlisted bidders/vendors.

The unfilled resource template in pdf format has been attached in previous lecture 35

The illustration-based cost estimations have been populated in a table in the attached video to make your understanding easier.

This lecture focuses on building skills for analyzing, negotiating, and finalizing the cost elements  for estimating cost for  machined items -Cat 1 using the FPC approach

a) The approach for estimating machine hour rates on an FPC basis involves the development of a process sheet based on the drawing of the item to be machined specifying i) equipment needed, ii) Tools, iii) Jigs & Fixtures, iii) estimating throughput times, for machining etc.

The following cost elements need to be assessed and have been populated in illustration no 3  and captured in resource template attached.

1. Estimate (machining operation wise) machine hour rates based on Depreciation+ maintenance costs + financing cost

2. Estimate manufacturing variable costs

3. Estimate the cost of cutting tools

4. Estimate Machining cost including manpower rates –skilled and unskilled variable

5. Estimate  overhead costs and apportioning on total throughput time

6 .Estimate marketing Variable costs

7.Estimating total costs =Machining cost+ overheads + % margins + % taxes

Assumptions

In this lecture, in illustration no 3 , machine hour rates have been computed based on the assumptions below for "Turning" operations by a set of Lathe machines.

i) M/C Depreciations:

Assuming Depreciation @10% considering a 10-year life and straight-line method, working hours /year 4800 considering 2 shifts of 8 hours each x 300 working days/year.

ii) M/C maintenance:

Maintenance and repair for equipment, including spares for lifting equipment, Robot arms, Fasteners, Safety supplies and overhauling spares +oils &lubricants

Assume  maintenance costs (say 12% approx) to be applied over 4800 hours

iii) Financing cost:

Annual Interest @10% on loan amount on loan say borrowing of appr 71% of investment) taken  and costs to be applied on 4800 hours

Based on the assumed Equipment  cost (set of lathes) for meeting production demand, the machine costs/ hour have been estimated as Rs Rs 379/hour (208+25+146  for i)+ii)+iii respectively and populated in illustration no 3 , and resource template attached.

The illustration-based cost estimations have been populated in a table in the attached video to make your understanding easier.

The costs towards the remaining cost elements will be shared in the next lecture.

In continuation of previous lecture 37 & illustration no 3 ,  this lecture focuses on building skills for analyzing, negotiating, and finalizing the cost elements for "manufacturing variables" as shown in the populated resource template attached.

• Power Consumption

• Manufacturing Consumables

• Jigs & fixtures cost

• QC Gauges & instruments costs

Assumptions

i)Power Consumption

Charges for powering machinery, equipment, and lighting on the production line and warehouses

machine uses 10 kW per hour and electricity costs INR 8 per kWh

ii)Manufacturing Consumables

Consumables like cutting oils, lubricating oil/grease for equipment and estimated costs to be applied over 4800 hours( considering 2 shifts)

iii)Jigs & fixtures cost

Specialized holding of tools and parts to be machined , their wear & tear parts replacements and  estimated costs to be applied in 4800 hours

iv) QC Gauges & instruments costs

Vernier calipers, micrometers, Go-no Go gauges, Test lab equipment etc estimated costs  to be applied in 4800 hours

In this illustration no 3 , the costs based on FPC have been computed as below(Rs/hour)

Power Consumption=Rs 80, Manufacturing Consumables=Rs 70, Jigs & fixtures cost=Rs 21 ,

QC Gauges & instruments costs=Rs 10

The illustration-based cost estimations have been populated in a table in the attached video to make your understanding easier.

In continuation of previous lecture 38 & illustration no 3 ,  this lecture focuses on building skills for analyzing, negotiating, and finalizing the cost elements for "Cutting tools " as shown in the populated resource template attached.

Assumptions

In continuation of lecture 38, it is assumed ( for ease of understanding ) that machining of the  part, where cost estimation is to be done involves 4 operations as below using cutting tools as below:

i)Lathe= Carbide Insert for "turning, facing," etc. & can produce 50 pieces before full wear out of tool life.

ii)Milling machine = Inserts for "milling cutter, end mills"  can produce 40  pieces before full wear out of tool life.

iii) Boring machine = Inserts for "boring tool and boring bars"   can produce 60 pieces before full wear out of tool life.

iv) Grinding machine = "Grinding wheel, finishing wheels"  can produce 100  pieces before full wear out of tool life.

So, in our  illustration no 3 derived cost of cutting tools, to be apportioned to machined part are computed as below and captured in  populated resource template attached.

i) Apportioned tool cost for Lathes= Rs 6.0/unit of machined item

ii) Apportioned tool cost for Milling machine = Rs 12.50/unit of machined item

iii)  Apportioned tool cost for Boring machine = Rs 6.66./unit of machined item

iv) Apportioned tool cost for Grinding machine =Rs 6.0/unit of machined item

The illustration-based cost estimations have been populated in a table in the attached video to make your understanding easier.

In continuation of previous lecture 39 & illustration no 3 ,  this lecture focuses on building skills for analyzing, negotiating, and finalizing the cost elements for "following  costs"

• Overheads

• Marketing Variable costs

• Manpower

So, in our  illustration, no 3 derived cost of the above cost elements , for the machined part  are computed as below

• Overhead costs = 285 per  unit of machined item (computation included in video lecture )

• Marketing Variable costs  costs=Rs 108 per unit of machined item  ( computation included in video lecture

• Manpower costs= In this video lecture   only assumptions are listed as below   whereas computation of manpower costs/unit is  given  in  next lecture  41

  
  

  Hourly rates for Skilled and unskilled: Rs 300/ Hour  & Rs 150/hour respectively  based on Rs 60,000 and  Rs 30,000 per month costs  respectively with   and no of hours per month permitted  200 hours pm(@ 8 hours/day x 25 working days)

The illustration-based cost estimations have been populated in a table in the attached video to make your understanding easier.

In this lecture, the focus is on building skills in you to understand the complex machining cost-determination process using the concept of "Throughput time"  for machining the item.

It involves the determination/computation of the following, as shown in this lecture and illustration 3

1. Determining throughput time by process engineer for each machine like turning, milling, boring & grinding  ( estimated as 15,20,25,30 minutes respectively per piece of machined item (Total=90 minutes

2. Estimating pure machining cost per unit ( equipment cost manufacturing variable costs) for all machines (estimated as Rs 1137/per unit of machined item  based on pro-rata throughput time.

3. Estimating labour cost /unit  as (Rs 450 skilled +Rs 225 unskilled)   per unit of machined item based on pro-rata throughput time.

4. Estimating tooling cost /unit  as Rs 31.20 per unit of machined item based on pro-rata throughput time.

So total  estimated machining cost =Rs 1843 per unit of machined item (sum of 2+3+4) with assumed throughput time of 90 minutes

This cost of Rs 1843/ unit excludes the following, which will be added in the next lecture 42 for estimating total costs .

• Marketing variable costs

• Overheads

• Margin = %

• Taxes on machining = %

The illustration-based cost estimations have been populated in a table in the attached video to make your understanding easier.

In continuation of previous lecture 41, in this lecture, you will have an understanding of how to compute the total cost of a machined item as depicted below vis a vis our illustration. no 3

1. Machining cost =Rs 1843 /unit of machined part –including equipment, manufacturing variables, manpower, and tooling costs. Refer to template S3RT4(4) in previous slide

2. Estimated Marketing variable costs =Rs 108/unit as per computation in last lecture

3. Estimated overheads= Rs 285/unit- as per computation in the last lecture

4.Subtotal=Rs 2236/unit (1843+108+ 285) as above

5. Estimated Margin = % on subtotal to be negotiated (

6.Taxes on machining = % as per statutory norms

7.Total cost of machined item(without Material cost) =Rs 2236 /unit+% margin+ %Taxes as above

The illustration-based cost estimations have been populated in a table in the attached video to make your understanding easier.

This lecture is designed to help you grasp cost elements, such as below.

1. Equipment: Depreciation, annual maintenance &  Finance costs, etc.

2. Tools: Consumption value, sharpening costs, etc.

3. Jigs/ fixtures: Consumption value, annual maintenance, etc.

4. Manufacturing variables: Power, consumables, fuels etc

5. Marketing, variable: Freight, packing, marine insurance etc

6. Manpower: Payroll, overtime, reimbursements, etc.

7. Overheads: electricity for offices, HVAC running costs, Depreciation of buildings, vehicles, office equipment, their repair and maintenance, insurance, lease rentals-others, communications, travel and conveyance, legal and professional, entertainment, etc.

Correct estimations of the expenses will make cost estimation accurate and enable you to negotiate logically

Today’s session will equip you with strategies to master effective contract negotiations based on knowledge of following and preparation of comparatives

1. Bids from alternate vendors –Say R1( vendor 1, vendor 2, vendor 3...& so on)

2. Cost estimates based on 1st principal costings -Say R2

3. Rate from previous Purchase order-Say R3

4. Rates from the Internal budgeting/costing -Say R4

5. The rate at which vendor supplies material to other clients/buyer’s competitors  -Say R5

6. Rates from Internet search /Amazon etc –Say R6

7. Rates from autonomous bodies like the Association of Industries-Say R7

   These are shared in the attached video lecture S3L9  and in resource template S3RT5.

By the end of this lecture, you will understand examples of Category 2 contracts enabling you to identify similar contracts in your organisation and initiate actions to improve robustness of contract negotiation processes.

A few examples of high-value contracts in Cat 2 are

1. Jacuzzi systems

2. Bathtubs

3. Water softener plants

4. Boilers

and so on

These need SITC -Supply, installation, testing and commissioning

In this lecture, you will learn how to capture, through real-world examples of, supply, installation, testing, and commissioning  (abbreviated as S-I-T-C ) activities that will help you estimate costs of I,T, and C  using First Principle cost (FPC basis).

Please refer to illustration no 4 -SITC of the Jacuzzi system in this lecture

To arrive at costs, the negotiating team must have a complete understanding of the following (in addition to the material costs )

1. Estimates of Manpower /man-days, stagewise along with rates/day for I, T, C

2. Estimates of the types of equipment and tools required for I, T, and C are crucial, as they ensure the availability of necessary resources and influence the negotiation process.

3. Estimates of costs related to assembly variables for performing I, T, and C at the client end.

In our illustration of the Jacuzzi system, 12 technical activities have been captured @ 4 activities each for I,T, and C, respectively  for estimating costs

These are shared in the attached video lecture S3L11.

In this lecture, you will learn to determine total material costs based on the breakdown of individual Cat 1 items that make up our target illustration 4 -Jacuzzi system in a template attached   using FPC.

The template design includes a 6-column template with the following heads to capture Items in different rows

1 S no 2 Description of material 3 UOM 4 Quantity 5 Landed Rate 6  Amount

In our illustration 4, the cost of the landed material is estimated to be Rs 4,50,000  in the enclosed resource template  attached and can be used for estimating the material costs of any Cat 2 contract.

The illustration-based cost estimations have been populated in a table in the attached video to make your understanding easier.

In earlier lecture 45, you learned to capture technical activities for I,T, and C. in this lecture, you will learn to determine manpower costs based on activity listing for our target illustration 4  using FPC.

The template attached includes a 5-column template with the following heads to capture manpower costs in different rows based on assumed skilled & unskilled man-day rates.

1.S No 2 Description 3 Installation (I)Cost -Rs 4 Testing (T)  Cost - Rs 5 Commissioning (C) Cost Rs

In our illustration 4 (Jacuzzi system ), the manpower costs are estimated at Rs 22100 as per the enclosed resource template attached

This template attached , being common , can be used to estimate the manpower costs of any Cat 2 as also Cat 3 contracts .

Estimated manpower costs  in Rs= 22100 ( I=7600+T=4500+C=10000)

The illustration-based cost estimations have been populated in a table in the attached video to make your understanding easier.

The objective of this lecture is to prepare you to learn how to compute total SITC costs for Cat 2 type contracts using illustration 4 -Jacuzzi system in templates attached.

The total cost works out to be Rs 4,99,000 + OH + Margin+Taxes as below and can be used to estimate costs for any CAT 2 contracts in your organization using FPC.

1.Materials cost =Rs 4.50,000  in  video lecture 47

2. Manpower costs -Installation, Testing & Commissioning -=Rs 22100 in video lecture 48

3. Tools/equipment costs - Installation, Testing & commissioning=Rs 17000 in this lecture

4.Assembling & marketing variable costs =Rs 9900 in this  lecture

5.Subtotal of Costs as above =Rs 4,99,000 (1+2+3+4) in this lecture

6. Overheads-as % to negotiate

7.Margin = To negotiate as %

8.Taxes =As applicable

By the end of this lecture, you will understand examples of Category 3 contracts enabling you to identify similar contracts in your organisation  and initiate actions to improve robustness of contract negotiation processes.

A few examples of high-value contracts in Cat 3 are

1. Setting up of new manufacturing plants for EV-Electrical vehicles

2 . Setting up Heavy engineering and fabrication works, eg for manufacturing turbines

3. Setting up factories for Precision engineering companies needed for the Defence sector or aircraft

4. SITC for Lifts and escalators for large projects like International Airports or residential complexes

and so on

These need SITC -Supply, installation, testing and commissioning

In our Cat 3-Illustration no 5th -Passenger Lift with high speed ( for 10 -story building ) , the  material cost is estimated as Rs 41,60,000 in this video lecture  and resource template attached.

In this lecture, you will learn how to capture, through real-world examples of, supply, installation, testing, and commissioning  (abbreviated as S-I-T-C ) activities that will help you estimate costs of I,T, and C  using First Principle cost (FPC basis).

Please refer to illustration no 5 -SITC of the Passenger system in this lecture.

To arrive at costs, the negotiating team must have a complete understanding of the following (in addition to the material costs )

1. Man-days required stage-wise for Installation, testing & commissioning depending on Project size.

2. Equipment and tools required for I, T, and C are necessary resources that influence the costs in the negotiation process.

3. Other related Assembling variables and marketing variables incurred by the contractor

4. Statutory charges for obtaining approval before putting lifts into use

In our illustration of the passenger lift system, 12 technical activities have been captured @ 4 activities each for I,T, and C, respectively for estimating costs.

In this lecture, the focus will be on equipping you with the skills to estimate essential cost elements involved in estimating I, T, and C costs for Cat 3 contracts through illustration no 5 -SITC of the Passenger system.

Two activities need to be performed as below.

1. Estimating the technical requirement in 3 columns for I, T, and C vis a vis  five cost elements

   i) Equipment ii ) tools iii) Gauges iv) Manufacturing & marketing variable  &  v) statutory approvals 

2. Estimating costs using FPC (based on the above technical requirements in   3 columns for I, T, and C  vis a vis each of the five cost elements mentioned above  ( Refer to resource template attached)

In our Cat 3-Illustration no 5 -Passenger Lift with high speed ( for 10 -story building ) , the  ITC costs are estimated as  I=Rs 200000, T=Rs 42000, C=Rs 94000  & Total =Rs 336000

The illustration-based cost estimations have been populated in a table in the attached video to make your understanding easier.

This session will provide you with valuable insights into.. computation of manpower costs  in case of Cat 3 contracts involving SITC.

The steps involved are

1. Computation of manpower skilled and unskilled  nos

2. Estimating Manpower rates

3. Manpower cost estimation based on performing activities for I,T & C in a Resource template attached.(common for cat 2 &3 )

These can be plotted in a template of 5 columns representing as below.

1 SNo 2 Description3 Installation (I) Cost -Rs 4 Testing (T) Cost - Rs 5 Commissioning (C) Cost -Rs

In our illustration  no 5. the manpower costs are estimated as below based on assumed man-day rates

Total manpower costs  =Rs 176000 (I=96000+T=30000+C=50000)

The illustration-based cost estimations have been populated in a table in the attached video to make your understanding easier.

This session will equip you with skills to estimate total costs in case of Cat 3 Contracts using FPC

For our illustration no 5, the passenger lift system, the working is as below.

1.Materials cost =Rs Rs 41,60,000 (S3RT10).

2.Manpower costs -Installation, Testing & Commissioning -=Rs 176,000 (S3RT7)

3.equipment costs - = Rs 65,000 (S3RT8)

4.Tools/jigs cost=Rs 11500 (S3RT8)

5.Gauges=Rs 3500 (S3RT8)

6.Manufacturing & marketing variable costs = Rs 56000 (S3RT8)

7.Statutory approval costs= Rs 200,000 (S3RT8) In this lecture

8.Subtotal of Costs as above = Rs 46,72,000 (sum of above)

9.Overheads=% to negotiate

10.Margin = To negotiate as %

11.Taxes =As applicable

12.Total Cost = = Rs 46,72,000 + OH+ Margin+ Taxes

You can listen to video mp.4 S3L18 and refer to resource template S3RT9.

In this lecture, you will explore pre-negotiation-related granular strategies to enable a level playing field for shortlisting potential vendors in a professional manner.

These are classified as below.

1.RFQ(Request for quotation) preparation -4

2. RFQ Floating stage-5

3. Bid Evaluation Stage- 6

For insights, please listen to the video lecture.

In this lecture, you will explore granular strategies  for the negotiation meeting and for seeking management approval

13  micro-level strategies  are classified under 2 heads

1. During negotiation meetings -9

2. Note for seeking management approval-4

For insights, please listen to the video lecture.

In this lecture, you will explore granular strategies that will enable robustness in the contracting process.

This includes 12 strategies vis a vis two stages as below.

1. Making POs, or work orders, or agreements -6

2. Forward-looking strategies -6   as below.

• 1. Avoiding Single-source buying

• 2. Continuously looking for cost-reduction

• 3. Implement a zero-tolerance policy toward unethical principles

• 4. Accelerating the Globalisation of vendor base

• 5. Increasing % buying share from vendors /contractors who are world-class in terms of Quality

• 6. Empowering the lower hierarchy for low-rate/low-value contracts

For insights, please listen to the video lecture.