1.3 Quotation model: cost structure & assumptions

A quotation is essentially a simulation of the entire production run. If the pricing model overlooks factors like material attrition, setup time, or component minimums, the factory’s margin can be eroded before the first board is even assembled. Since the quotation serves as the primary commercial agreement, any ambiguity here can lead to financial inefficiencies during project execution. To ensure scalability and transparency, it’s essential to clearly separate variable unit costs from fixed setup costs.

Standard cost blocks

The price structure should accurately reflect the distinct physical processes of manufacturing. Avoid bundling different processes into a single, opaque “black box” price.

1. Material cost (variable)

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

2. Assembly labor (variable)

Costs should be calculated based on the standard time required for each operation.

SMT: Cost per placement, based on the components-per-hour (CPH) rating of the assembly line.
THT (Through-Hole): Cost per joint, whether for manual or wave soldering.
Secondary Operations: Time for processes like conformal coating, potting, or depanelization.

3. Test & box build (variable)

AOI/SPI: Automated Optical Inspection is standard and is usually included in the SMT rate.
Functional Test: Measured in minutes per unit. When a test cycle exceeds 5 minutes, it’s generally necessary to allocate dedicated station costs.
Box Build: Measured in operator minutes for tasks like screwing, cabling, and packaging.

4. NRE (Non-Recurring Engineering)

These are fixed, one-time costs.

Tooling: Stencils, wave solder pallets, and test fixtures (e.g., bed of nails).
Setup: Machine programming, reflow profiling, and stencil cleaning.
Rule: NRE costs must not be amortized into the unit price.
- Reason: If a customer’s order volume decreases after the quote is accepted, an amortized NRE structure prevents the factory from recovering its full costs. Keeping NRE as a separate line item protects the factory’s financial baseline.

MOQ & SPQ logic

Component manufacturers sell in bulk (reels or tubes), while customers order specific quantities. This difference creates “Excess Material Liability.”

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

Managing Excess Material

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

Sub-SPQ Demand: When production demand (e.g., 500 units) is less than the standard package size (e.g., 3,000 units), the customer assumes responsibility for the full SPQ. The factory typically holds this excess material for future runs or ships it to the customer.
Multi-SPQ Demand: When volume (e.g., 5,000 units) requires multiple full packages (e.g., 2 reels totaling 6,000 units), the customer purchases the necessary full packages and assumes liability for the remainder.
Common Stock Exemption: For high-volume, generic components (like a standard 10k resistor), the factory generally absorbs the SPQ minimums, charging the customer only for the quantity consumed.

Lead time promise rules

Lead time is not arbitrary; it’s a calculated critical path.

Formula: Lead Time = Longest Lead Time (LLT) Component + Production Time + Logistics.
Validity Check:
- Stagnant Quotes: A quote older than 72 hours requires immediate re-validation of current stock levels, given how quickly global inventory can shift.
- Allocated Components: If the critical-path component is on allocation, 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” by defining the boundary conditions of the price. If these assumptions are violated during the project, the quote becomes 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 standard panel efficiency (greater than 80% utilization).
Component Condition: Pricing assumes any consigned parts arrive in machine-ready tape or reel formats, not 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

Recap: Quotation Model Cost Structure & Assumptions

Parameter	Requirement	Value / Condition	Action / Risk
Material Attrition	Buffer for small components	1.5% – 3% for 0402 or smaller; 0% for high-value items	Include in BOM cost calculation.
NRE Costs	Fixed, one-time fees	Stencils, fixtures, programming, setup	Itemize separately; do not amortize into unit price.
Excess Material Liability	SPQ/MOQ management	Customer pays for full vendor package (SPQ) unless common stock.	Identify and document stranded inventory risk for custom parts.
Lead Time Validity	Quote expiration & component allocation	Revalidate stock for quotes >72 hours old. If critical part is on allocation, quote lead time as TBD.	Re-check inventory; flag allocation status.
Functional Test Costing	Dedicated station threshold	Test cycle >5 minutes per unit.	Itemize as separate cost block.
Pricing Assumptions	Quote validity boundary	Clean BOM/XY data, >80% panel utilization, machine-ready parts, ±3% currency fluctuation.	Violation voids quoted price.