3 Easy Steps to Prepare for Cost Modeling

Customers who have engaged us to develop should-be cost models usually do so for one of two reasons:

  • To validate quotes being provided by suppliers.
  • To estimate pricing without sending out Request for Quotations to their suppliers.

Good should-be cost models fulfill both objectives enabling buyers to buy at prices 5-11% lower than buyers who do not have cost models.

Should-be cost models can provide additional benefits:

  • Knowledge – Improved knowledge within the buying organization of cost drivers and manufacturing.
  • Leaner Supply Base – Enhanced cost knowledge enables purchasing to buy with pricing confidence from fewer suppliers providing benefits to purchasing, engineering and operations.
  • Credible Pricing – Better data facilitates analysis to avoid a supplier from “buying the business” by pricing at a loss.

Should-be models can be as simple as Cost Catalogues or as complex as Manufacturing Process models that use physical part attributes to calculate machine sizes and cycle times as well as standard labor and overhead rates to complete the cost estimates.

Buyers who want to develop cost models should begin with the following 3 steps:

  1. Identify physical part attributes likely to drive costs for the commodities to be modeled.
  2. Include the attributes on their Request for Quotations for initial sourcing and design changes.
  3. Start aggregating quote data in a Cost Catalogue that includes the attributes likely to drive costs including key elements from supplier cost breakdowns if they are obtained from suppliers.

More information on how to build cost models can be found in our free video podcast series: Click here

We have commodity specific one-day training sessions for buyers on these subjects: For more information: Click here


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