3 Reasons Buyers Resist Using Should-Be Cost Models

Last week we blogged about the reasons why buyers should use should-be cost models.  In summary, effective should-be deployment needs to be designed with the following objectives to maximize success:

1. Reduce buyer workload
2. Make cost negotiations easier
3. Help achieve lower cost designs
4. Improve career prospects for buyers

Even when the application of should-be cost models achieves these 4 objectives buyers still may resist.  Why?  Here is what our experience tells us:

1. They were not involved in the development of the models and/or they do not know how the models work. Buyers who have been engaged in model development achieve understanding and the “buy in” that naturally occurs when people are engaged in the creation/refinement process.  Buyers who understand how the models work can engage suppliers more productively and identify the gaps between what the suppliers are telling them and the models.
2. There is a workload increase when implementing models. Once in use, should-be cost models increase buyer efficiency and make negotiations less time consuming.  However, there is a workload increase that occurs whenever we change processes.  This is especially true for should-be cost model implementation where we must explain and negotiate usage not only with the supply base but within the company.  Here is how we have seen companies deal with the issue of workload increase during implementation:
   1. Eliminate or off-load other non-value-added work
   2. Bring in temporary help to supplement the buyers until the hump is complete
   3. Management assists with supplier buy-in and leads the charge to gain buy-in from internal departments
3. Buyers are uncomfortable with how to negotiate using the models. Negotiating on price is straight forward; negotiating with detailed cost breakdowns and cost models becomes more complex because:
   1. Buyers are dealing with suppliers’ confidential information
   2. Supplier cost structures will be different based upon the equipment they use and other factors
      Buyers are dealing with supplier confidential information

8-18% is the savings buyers achieve when they move from price-based competition to cost-based collaboration. Our training includes the tools, techniques and knowledge we have used in helping clients achieve these results.

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We have seen clients use the following methods to assist buyers in becoming more confident when negotiating with cost models:

• Lead by example. Managers demonstrate by leading a negotiation and then observe the buyers as they negotiate with should-be models for the first time.
• Ensure buyers understand how models have been developed and how to use them to negotiate effectively.

We have found that buyers are more likely to use cost models when they are involved in model design, obtain assistance with the workload implications and receive skills training on how to negotiate with the models.

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