In the contract-manufacturing (OEM) industry, the fiercest battle isn’t on the production line — it’s on the “quotation.”

Many factory owners have faced the situation where a customer waves a competitor’s quotation to pressure for a discount, or where you slash the price to win the job — only to finish production, settle the books, and find “we worked ourselves to death for less than 5% profit” (or even a loss).

The main cause isn’t poor management. It’s that your system for calculating “cost before taking the job (Pre-Calculation)” may still have loopholes.

Why do OEM factories misjudge cost?

Relying only on instinct, experience, or the same old Excel formulas to price OEM jobs in this era is very risky, because:

Volatile material prices: Steel, plastic, or packaging prices change almost weekly. Multiplying by an old price in Excel may make you calculate cost lower than reality.
Forgetting losses (Yield & Scrap): Producing 1,000 pieces doesn’t mean using material for exactly 1,000 pieces — you have to allow for the percentage of scrap and offcuts.
Invisible hidden costs (Overhead Cost): Machine electricity, staff overtime, forklift fuel… these are often roughly estimated, distorting the figures.

Win the competition: use ERP to calculate cost “precisely” to every decimal

Top OEM factories don’t guess their costs. They use an ERP (Enterprise Resource Planning) system as the brain for pricing, which lets you lock in profit before the machine even starts:

1. Build a simulated production recipe (Engineering BOM)

When a customer sends a spec, the ERP lets you build a simulated Bill of Materials instantly, and the system runs against the “latest material cost (Moving Average or FIFO)” in the warehouse to calculate in real time — so you always get the most up-to-date Material Cost.

2. Calculate labour and machine cost (Routing & Work Center)

The ERP lets you define the routing — which machines this piece passes through, how many minutes, and how many workers — then pulls the overhead for each work centre to calculate the “Conversion Cost” into the piece automatically. No more estimating or guessing the figures.

3. Cost Simulation to set the sale price

This is the killer feature for OEM factories. Once the system sums all costs (material + labour + overhead) into a Standard Cost, you can enter the % margin you want, and the system instantly calculates the appropriate per-unit sale price — giving you data solid enough to negotiate with the customer without being squeezed into the red.

Results: take orders with confidence, see profit from day one

Switching from Excel to an ERP for cost estimation moves your OEM factory from “gambling” to “professional”:

No fear of taking small lots or new customers with odd specs.
Reply to customer quotations faster and more accurately.
When production is done, compare actual cost against the estimated standard cost to find leaks and improve on the next order.

Because in contract manufacturing, “the one who knows the true cost is the one who wins.”

Is your factory facing the problem of working hard but seeing no profit? Let the experts at BRID help analyse your production process and set up an ERP to plug your cost leaks.

OEM factories must know! How to calculate per-unit cost precisely, avoid being squeezed on price, and see profit before you take the job