Elon Musk
Part price over material price
A number that tells you where to start
Isaacson's biography, on the SpaceX costing method
He gives every component a humiliating score. What it does is turn a way of thinking into something you can run on a spreadsheet.
What actually happened?
Isaacson records a hard metric inside SpaceX: the idiot index — the finished price of a part divided by the cost of its raw material. An aluminium part holding a few hundred dollars of metal, bought for tens of thousands, scores in the dozens. A score that absurd says what you are paying for is process and inertia, not physics. The rule follows: a high index is either explained or made in house. Many Falcon parts ended up built on site, at a fraction of the industry price. What makes the index good is that it turns a judgement call into a list you can sort.
The index turns judgement into a scanner
First principles depends on someone deciding to think. The index makes the candidates queue up on their own: run the ratio across every purchased line, sort descending, and the rebuild priority list writes itself. The best form a method can take is decaying from an insight into a division anyone can do.
Divide each outsourced fee by what doing it in house would cost in people and tools. The few at the top of that list are the ones to bring back.
A high score is a toll booth left by history
A part selling at fifty times its metal usually has no villain behind it: years of safety margin, layers of certification, small batches, a sole supplier. Every layer had a reason once; stacked up they are a row of toll booths. You do not negotiate those away, you route around them.
Half of an incumbent supplier's quote is paying for a process set twenty years ago. What will not come down under pressure often goes to zero on a different route.
Where the score is low, leave it alone
The tool carries its own limit. A part scoring near one is already priced against physics; making it yourself will not be cheaper, only slower. So it guards against more than overpaying — it guards against the compulsion to build everything. Vertical integration belongs where the index is high, not everywhere.
Bringing a part scoring thirty in house saves money. Bringing one scoring one point two in house trades somebody else's scale for your own tuition.
How do I use it today?
Where you are: costs will not come down and you cannot see where to cut.
Ask first: divide every line by its underlying material or compute cost. Who scores highest?
Where it goes wrong: bringing everything in house on sight of a high score without doing your own scale and yield arithmetic, or using the index as a stick to squeeze suppliers.
Lines to keep
The idiot index: a part's finished cost over its material cost.
A ratio that high means you are paying for process and inertia, not physics.
High index: either explain it, or make it ourselves.
Same situation, other people are asking
I'm told this is just what it costs. Is it?Costs won't come down and I can't see where to cut first.Every stage in this takes a cut and each one says it is necessary.Every team keeps a buffer and I've stopped asking why.Everyone says it can't be done cheaper · all 5 questions →If this one named what you are going through,
send it to someone who needs it, or keep it somewhere you will find it again.