Part 5: How Transparent Pricing Models Mitigate the “New Part Tax”
Welcome to Part 5 of the Tenet Consulting Value Driver Series, where we highlight overlooked yet impactful opportunities in supplier negotiations. While achieving piece price reductions remains a cornerstone of strategic sourcing, leading manufacturers understand that non-price benefits—when effectively negotiated—can deliver significant operational value and cost avoidance. At Tenet, we go beyond price to help our clients extract maximum value by negotiating holistic supply agreements with all selected suppliers, optimizing both commercial and operational outcomes.
This article introduces a powerful yet often underutilized or ineffective tool—the Transparent Pricing Model (TPM)—and how it can mitigate one of the most common cost traps in new product development: the “New Part Tax.”
Understanding the Transparent Pricing Model
At its core, a Transparent Pricing Model (TPM) is a structured cost breakdown provided by the supplier for every part they supply. The TPM details each cost input—material, labor, overhead, packaging, selling, general, and administrative (SG&A) costs, profit, logistics, etc.—with varying levels of granularity depending on the component type. For standard catalog items like fasteners or fittings, this may be straightforward. For engineered parts like chassis or wiring harnesses, more detailed modeling is expected.
By requiring TPMs as part of supplier engagement, companies gain critical visibility into what they are paying for—and why.
The Hidden Cost: The New Part Tax
One persistent issue we see across manufacturing clients is what Tenet refers to as the New Part Tax. During the development of new products, engineering teams often modify existing part designs—sometimes as minor as shifting a hole or changing a dimension. These changes result in a new part number. Unfortunately, this provides an opportunity for incumbent suppliers to submit new quotes with inexplicably higher pricing, even when the part is functionally and economically similar to its predecessor.
For example, consider a situation where a company previously sourced an aluminum bracket (Part A) for $12.50. During a product update, engineering makes minor changes—such as shifting two holes and slightly increasing wall thickness—resulting in a new part number (Part B). The supplier quotes the new part at $16.25, a 30% increase, despite no meaningful changes to material usage or manufacturing effort. Without a Transparent Pricing Model in place to compare the cost inputs of Part A and Part B, procurement lacks the visibility and leverage to dispute the increase. As a result, the inflated price is approved to avoid program delays—despite the lack of real cost drivers. This practice, repeated across dozens or hundreds of parts, can quietly inflate direct material costs by hundreds of thousands—or even millions—of dollars over the life of a product.
Tenet’s TPM-Based Approach to Eliminate the New Part Tax
At Tenet Consulting, we work closely with clients to include TPM requirements in all negotiations and then document these requirements in supplier contracts, ensuring suppliers are obligated to:
- Submit full cost breakdowns with each quote
- Maintain accessible TPM documentation for all active and legacy parts
When a new part is introduced, we request the supplier to submit a TPM alongside the quote, allowing a direct comparison to the prior part’s cost structure. If material or process differences justify the increase, it is validated and accepted. If not, clients are empowered to challenge the price and avoid unjustified cost increases.
Client Value & Business Impact
The integration of TPMs provides multiple benefits:
- Objective, Fact-Based Pricing Discussions: Reduces negotiation friction and enhances supplier accountability.
- Strengthened Supplier Relationships: Promotes transparent, data-driven communication.
- Prevention of Unjustified Cost Inflation: Protects margins during new product introductions.
- Operational Cost Optimization: Facilitates proactive sourcing governance.
For instance, one of our clients was able to reduce new part pricing by 40% by implementing Transparent Pricing Models, demonstrating the effectiveness of our approach. By embedding TPM principles into sourcing strategy, Tenet Consulting helps clients move beyond short-term savings and unlock sustained value through disciplined cost transparency—starting with eliminating the New Part Tax.
Take Control of Your New Part Costing
Are you ready to implement Transparent Pricing Models and mitigate the New Part Tax within your organization? Contact Tenet Consulting today to learn how our approach can empower your sourcing strategies and protect your margins!
