Demystifying COGS: The TESCA Approach

Facture utilizes our proprietary end-to-end TESCA approach for our clients, who aim to produce new and innovative CPG products through contract manufacturing.  Our approach starts with traditional elements of a traditional techno-economic analysis used in CPG manufacturing and layers in elements rooted in the semiconductor industry.  

These additional components allow our team to start discussions with potential manufacturing partners with a high degree of certainty about the product's manufacturing cost. You’ll learn the components of the TESCA that allow our team to negotiate reasonable tolling fees effectively on behalf of our Clients.

Techno-economic should-cost analysis:

Techno-economic analysis [TEA]: Combines technical engineering and deep manufacturing economics. Our COGS modeling strategy includes components of process-specific challenges and accurate modeling of utilities and resource usage.

These are the key components that comprise the TEA component of the TESCA:

Yield and shrink are developed utilizing a full mass balance, which may be inherent to the process.  These data points become increasingly accurate on each process repetition and gain higher resolution with each scaling phase:

OEE Components [throughput, reliability, first pass quality]

• Demonstrated or projected unit operation production rate over the maximum design speed of the machinery

• Potential drivers of additional downtime as compared to the average of a similar process

• Manufacturability challenges that may result in a higher percentage of rejected product exiting a given unit operation

Technical analysis also considers any potential additional technical challenges or limitations that may affect the implementation and operation of the technology and often inform “sensitivities” or key drivers of any given CPG product’s Cost of Goods Sold.

Economic should-cost analysis: This aspect traditionally focuses on calculating and analyzing the known costs of operating a production line and facility. Facture’s extended contract manufacturing model utilizes the “should-cost” methodology at this point in the analysis process. 

Materials: The model's raw and packaging material component is the most straightforward. We solicit at least three quotes for every material used in the product. We use the lowest-cost material that meets all quality and functional requirements and can satisfy our Client’s projected demand requirements. We build tiered volume pricing into the model as necessary.

Direct labor:  We estimate labor accurately through historical labor and factory design data.  Our methodology was developed utilizing a combination of the most accurate and accepted variation of the traditional time study [which sums the individual movements of every employee that touches a process] and our years of experience on the manufacturing floor.  

Overhead and Indirect labor: In summary, we model utilities [gas, electric, compressed air, etc.] in a facility that would have most [or all] of the required unit operations for our Client’s process, fractionally assign that, and assume indirect labor costs to the line and product.

Communication dashboard and sensitivity analysis:  We communicate the most critical data points to our Client’s leadership teams via a dashboard like the one below: 

TESCA Launch Dashboard

Each dashboard is unique to the Client and highlights the status and impact of the product’s sensitivities. 

Sensitivities are the factors that have the most significant influence on the project's economics, and this focus allows for better risk management and decision-making. 

We use our more detailed dashboard to review and troubleshoot these sensitivities with our Client’s technical team:

TESCA model detail

Once the techno-economic should-cost analysis [TESCA] is complete, it is compared to the actual costs provided by suppliers or manufacturers.

Significant discrepancies between the TESCA and actual costs quoted by potential partners indicate areas for negotiation, cost reduction opportunities, additional sensitivities, or simply that we need to continue our search for the ideal manufacturing partner for our Clients.