# Supplier Switching Cost Breakeven Calculator

> Source: https://netray.co/tools/supplier-switching-cost-breakeven-calculator
> Publisher: Netray (netray.co), AI and integration engineering for ERP and manufacturing systems.
> Section: Free Tools

## Short answer

Find out whether a cheaper quote really pays back once requalification, tooling transfer and transition inventory are counted.

## Category

supply-chain

## Industry

Discrete Manufacturing

## Audience

- Buyer
- Sourcing manager
- Supplier quality
- Procurement

## Tool

**Kind:** calculator

**Currency:** $

**Inputs:**

#### Current unit price

**Key:** cur_price

**Type:** number

**Default:** 10.5

**Min:** 0

**Step:** 0.1

**Unit:** $

#### New supplier unit price

**Key:** new_price

**Type:** slider

**Default:** 9.4

**Min:** 5

**Max:** 12

**Step:** 0.1

**Unit:** $

#### Annual volume

**Key:** volume

**Type:** number

**Default:** 60000

**Min:** 0

**Step:** 1000

**Unit:** units

#### Qualification cost

**Key:** qual_cost

**Type:** number

**Default:** 18000

**Min:** 0

**Step:** 1000

**Unit:** $

**Help:** First article inspection, PPAP or equivalent, audits, lab tests, travel, engineering time.

#### Tooling transfer or new tooling

**Key:** tool_cost

**Type:** number

**Default:** 35000

**Min:** 0

**Step:** 1000

**Unit:** $

#### Transition safety stock

**Key:** buffer_units

**Type:** number

**Default:** 8000

**Min:** 0

**Step:** 500

**Unit:** units

**Help:** Extra inventory built to cover the changeover.

#### Inventory carrying rate

**Key:** carry_pct

**Type:** number

**Default:** 20

**Min:** 0

**Max:** 60

**Step:** 1

**Unit:** % per year

#### Months buffer is held

**Key:** buffer_months

**Type:** number

**Default:** 6

**Min:** 0

**Step:** 1

**Unit:** months

#### Other one time costs

**Key:** other

**Type:** number

**Default:** 5000

**Min:** 0

**Step:** 500

**Unit:** $

**Help:** Legal review, freight setup, ERP master data, scrap of old stock.

**Outputs:**

#### Annual price saving

**Key:** annual_saving

**Expr:** (cur_price - new_price) * volume

**Format:** currency

#### Cost of holding the buffer

**Key:** buffer_cost

**Expr:** buffer_units * new_price * carry_pct / 100 * buffer_months / 12

**Format:** currency

#### Total one time cost

**Key:** one_time

**Expr:** qual_cost + tool_cost + buffer_cost + other

**Format:** currency

**Primary:** true

#### Payback period

**Key:** payback

**Expr:** if(gt(annual_saving, 0), one_time / annual_saving * 12, 0)

**Format:** months

**Description:** Shown as zero when there is no saving.

#### Net benefit over 3 years

**Key:** net3

**Expr:** annual_saving * 3 - one_time

**Format:** currency

**Primary:** true

#### Highest new price that breaks even in 3 years

**Key:** be_price

**Expr:** cur_price - one_time / (3 * volume)

**Format:** currency

**Chart:**

#### 3 year net benefit by new supplier price

**Type:** line

**X:** new_price

**From:** 7

**To:** 11

**Steps:** 40

**Series:**

- net3

**Disclaimer:** Planning estimate. It does not price quality risk, lead time risk, or the value of a second source. Add those as one time or recurring costs if they matter to your decision.

## Content

**Intro:** A lower quote is not a saving until it has paid back everything it costs to move. This calculator counts requalification, tooling, transition inventory and other costs against the price difference.

**Sections:**

#### How to use the calculator

**Body:** Enter your current price, the quoted price and annual volume. Then fill in one time costs: qualification, tooling, transition stock and anything else such as legal review or old inventory write off. The result shows payback in months, the net benefit over three years and the highest new price that still breaks even in three years. The slider and chart make it easy to test how negotiation on price changes the case.

**Bullets:**

- Use the supplier's firm quote, including freight and duties on a landed basis.
- Ask quality for a realistic qualification cost, including internal hours.
- Count tooling even if the supplier says it will pay, since it is usually amortized in the price.

#### The formula

**Body:** Annual saving equals current price minus new price, times annual volume. Buffer cost equals buffer units times new price times the carrying rate times months held divided by twelve. Total one time cost sums qualification, tooling, buffer cost and other costs. Payback in months equals one time cost divided by annual saving, times twelve. Three year net equals three years of saving minus the one time cost. The breakeven price equals current price minus one time cost divided by three times the volume.

#### Reading the result

**Body:** A payback under twelve months is usually attractive for stable, long running parts. For short program life, set the horizon to the remaining life of the part rather than three years. If the saving is small against a long payback, the change may only make sense if it adds a second source or reduces risk. Always weigh the cost against the price of a quality escape, as covered in the liability cap tool.

#### Common mistakes

**Body:** Teams compare unit prices and ignore freight, duty, payment terms and minimum order quantities. Another is leaving out internal engineering and quality time, which can be the largest qualification cost. Record the one time costs against the sourcing project so the actual savings can be compared with the plan once the new supplier ships at volume.

**Cta:** If you want landed cost and supplier performance side by side, we can help build that view from your purchasing and receiving data in your ERP.

**Faq:**

#### What costs are included in switching suppliers?

**Answer:** Typically qualification and first article work, tooling transfer or new tooling, transition inventory, logistics setup, legal and contract work, ERP master data changes, and scrap of old stock. Include internal labor, not only cash costs.

#### What payback period is good?

**Answer:** It depends on part life and risk. Under twelve months is often attractive for a long running part, while a short program may need payback in a few months. Choose a horizon that matches the remaining demand.

#### Does this include quality risk?

**Answer:** No. A new supplier carries ramp up risk. You can reflect that by adding an expected cost of early quality issues to the other one time costs, based on your history with new sources.

#### Who owns the tooling?

**Answer:** That should be written in the contract. If you own the tools, transfer is easier but you pay to move them. If the supplier owns them, you may have to pay for replacement tooling at the new source.

## Search terms

supplier switching cost calculator, change supplier breakeven, supplier transition cost, resourcing payback calculator, tooling transfer cost, requalification cost new supplier, total cost of changing supplier

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