Outsourced Processing Cost: Price per Part, and the Line Against Freight

Heat treatment, zinc plating, coating, dynamic balancing, non-destructive testing - the steps you do not run yourself. This guide shows how they enter product cost, and two borders that get crossed constantly: with freight, and with the cost of doing the work yourself.

Why it is not material

Costing sheets without this category force subcontracted steps into the material line. That is wrong at the root: it is not material - no weight, no yield, no price per kilo.

The damage is not just filing it in the wrong drawer. In any breakdown, material comes out inflated and outsourcing comes out empty, so neither “how much do I spend on material” nor “how dependent am I on outside shops” can be answered.

Outsourced processing

Steps you do not do in-house but buy from another shop: heat treatment, zinc or chrome plating, coating, dynamic balancing, non-destructive testing. Costed as a unit price per part times volume.

Enter it whenever a step is bought outside. It used to have to go under Materials, but it is not a material — it has no weight and no yield, and putting it there distorts both categories in the statistics.

Worked example: zinc plating at 3,500 per part, 2,000 parts a month -> 7,000,000 a month. If the shop charges per batch rather than per part (a furnace load at a fixed price, say), use the cost-per-lot and lot-size fields instead; the system divides it down per unit.

Comparing outsourcing against in-house, fairly

This is where the comparison usually tilts. The subcontractor's price is ONE number that already contains everything of theirs: machine, people, power, floor space, and their own scrap.

To compare fairly, the in-house side has to declare the same set - not just power and an operator's wage. Leave out Machinery and Factory overhead and the make-it-yourself option always looks cheaper than it is. That is the trap behind many machines bought and then found not to pay.

What does not belong here

• Freight to and from the subcontractor - that is Logistics. This field takes only what the subcontractor invoices.
• Parts the subcontractor spoils that you carry - that is Scrap or Rework, depending on whether the part can be saved.
• Your own people escorting the goods, inspecting on arrival or chasing the shop - that is Labor.
• A deposit on tooling or fixtures held at the subcontractor - that is investment, declared with the investment figures, not a monthly cost.

When it is worth separating this out

When you are weighing a machine purchase to bring a step in-house. Without this category the discussion has nothing but opinion in it.

And when an outsourced step is the constraint on delivery time - then it is both money and schedule, and money is the half that can be measured.

Build the comparison: open the cost calculator.