1.2 The Economics of the Open BOM

Transparency is the only effective hedge against inefficiency in a complex supply chain. In traditional manufacturing negotiations, profit margins are often hidden within component markups, creating an adversarial relationship between client and vendor. The "Open Bill of Materials" (Open BOM) model dismantles this opacity, aligning the financial incentives of both parties toward cost reduction.

The Closed BOM Model (Traditional)

In a Closed BOM arrangement, the manufacturer quotes a single unit price (e.g., $50.00). The client does not see the breakdown of costs.

• The Markup Game: The manufacturer might source a capacitor for $0.05 but charge the client $0.10. This hidden margin incentivizes the manufacturer to keep component costs high or to substitute cheaper, lower-quality parts without passing the savings to the client.
• Audit Difficulty: The client cannot audit the quote effectively because the cost drivers are obscured.

The Open BOM Model (Dannie Standard)

Dannie operates on an Open BOM basis. The client is presented with the exact acquisition cost of every component, often supported by supplier invoices.

• Service Fee: Profit is generated through a visible, agreed-upon service fee for assembly labor and engineering oversight.
• Incentive Alignment: If the procurement team negotiates a lower price for a processor, those savings pass directly to the client. The manufacturer is incentivized to find the best market price to secure the contract, rather than inflating costs to pad margins.
• Risk Management: This model allows finance teams to identify exactly which components are driving costs (e.g., silicon vs. mechanicals) and target those specific areas for re-engineering or renegotiation.

Final Checklist