1.3 Quotation model: cost structure & assumptions

A quotation is a simulation of the production run. If the pricing model fails to account for material attrition, setup time, or component minimums, the factory loses margin before the first board is placed. The quotation serves as the primary commercial contract; ambiguity here results in financial leakage during execution. Separate variable unit costs from fixed setup costs to ensure scalability and transparency.

Standard cost blocks

The price must be structured to reflect the physics of manufacturing. Distinct processes must not be bundled into a single “black box” price.

1. Material cost (variable)

BOM Cost: Sum of all electronic components + PCB fabrication.
Attrition (Scrap):
- Small Components: For components measuring 0402 or smaller, incorporate a 1.5% – 3% attrition buffer to account for normal loss during feeder operation.
- High Value Components: For high-value items, such as large ICs or specific connectors, attrition should effectively be 0%, as these are typically handled and loaded with greater care.
PCB Fabrication: Calculated based on layer count, material (FR4 vs. Rogers), and surface finish (ENIG vs. HASL).

2. Assembly labor (variable)

Calculations must be based on standard time per operation.

SMT: Cost per placement (CPH rating of the line).
THT (Through-Hole): Cost per joint (Manual or Wave Soldering).
Secondary Ops: Conformal coating, potting, or depanelization time.

3. Test & box build (variable)

AOI/SPI: Automated Optical Inspection is standard; usually included in SMT rate.
Functional Test: Measured in minutes per unit. When a test cycle exceeds 5 minutes, it is generally required to allocate dedicated station costs.
Box Build: Measured in operator minutes (screwing, cabling, packaging).

4. NRE (Non-Recurring Engineering)

These are fixed, one-time costs.

Tooling: Stencils, Wave Solder Pallets, Test Fixtures (Bed of Nails).
Setup: Machine programming, reflow profiling, stencil cleaning.
Rule: NRE must not be amortized into the unit price.
- Reason: Should the customer experience a shift in demand and reduce their order volume, an amortized NRE structure prevents full cost recovery. Maintaining NRE as a separate, distinct line item protects the factory’s financial baseline.

MOQ & SPQ logic

Component manufacturers sell in bulk (Reels/Tubes), while customers order specific quantities. This delta creates “Excess Material Liability.”

SPQ (Standard Package Quantity): The smallest pack size (e.g., a reel of 3,000 resistors).
MOQ (Minimum Order Quantity): The vendor’s minimum sale limit.

Managing Excess Material

Material liability inevitably arises from the delta between factory demand and vendor packaging standards. We manage this through standardized commercial practices:

Sub-SPQ Demand: When production demand (e.g., 500 units) falls below the standard package size (e.g., 3000 units), the customer assumes responsibility for the full SPQ. The factory typically holds this excess material for future production runs or ships it to the customer.
Multi-SPQ Demand: When volume (e.g. 5000 units) necessitates multiple full packages (e.g. 2 reels totaling 6000 units), the customer purchases the necessary full packages and assumes liability for the remainder.
Common Stock Exemption: For high-volume, ubiquitous generic components (such as a standard 10k resistor), the factory generally absorbs the SPQ minimums, charging the customer solely for the quantity consumed.

Pro-Tip: “Stranded Inventory” risks must always be identified in the quote. If a custom connector has a 14-week lead time and a Minimum Order Quantity (MOQ) of 1,000, but the build is for 100 units, the customer owns the remaining 900 immediately.

Lead time promise rules

Lead time is not arbitrary; it is a calculation of the critical path.

Formula: Lead Time = Longest Lead Time (LLT) Component + Production Time + Logistics.
Validity Check:
- Stagnant Quotes: A quote aging beyond 72 hours requires immediate re-validation of current stock levels, given the rapid shifting of global inventory.
- Allocated Components: Should the critical-path component fall under allocation status, the lead time must be quoted clearly as “To Be Determined (TBD),” pending formal order acknowledgment from the supplier.

The assumptions register

This section prevents “Scope Creep.” It defines the boundary conditions of the price. If these assumptions are violated during the project, the quote is void.

Mandatory Assumption Categories:

Incoming Data: Pricing assumes the Bill of Materials (BOM) and XY data are clean and require no mechanical engineering cleanup prior to programming.
Panelization: Pricing assumes a standard panel efficiency (greater than 80% utilization).
Component Condition: Pricing assumes that any consigned parts arrive in machine-ready tape or reel formats, rather than as loose components in bags, which require manual handling.
Currency: Pricing is valid for Exchange Rate ± 3%.

Quote summary template

Line Item	Description	Unit Cost	Total (Qty 100)
1.0 Material	BOM + PCB (incl. attrition)	$45.00	$4,500
2.0 Assembly	SMT, THT, Inspection	$12.00	$1,200
3.0 Test	ICT + FCT	$5.00	$500
4.0 NRE	Stencil + Setup (One-time)	–	$850 (Lot)
Total	Ex-Works Factory	$62.00	$7,050

Final Checkout: Quotation model: cost structure & assumptions

These parameters must be reviewed before sending the quote.

Check Item	Validation Criteria	Criticality
Excess Material	Customer liability for SPQ overages is explicitly stated.	Critical
Validity Date	Expiration date is defined (Std: 30 days).	Medium
NRE Separation	NRE is NOT hidden in unit price.	High
Lead Time	Based on current stock checks, not historical data.	Critical
Consigned Parts	Fee for handling consigned parts such as “loose parts” or “cut tape” included.	High
Currency	Base currency and exchange rate fluctuation limit defined.	Medium