Experience has taught us that buyers who understand should-be costs achieve prices that are 8-18% lower than buyers who do not.
One practice employed by buyers is the use of cost breakdowns. Buyers who achieve the best results from breakdowns employ the following:
- Utilize commodity specific cost breakdowns – Trying to use one format that incorporates the needs of many commodities often results in a breakdown that is too complicated and unlikely to provide useful data from suppliers. Commodity specific breakdowns can be tailored to reflect the accounting practices and unique data requirements for the commodity’s manufacturing process.
- Include physical part attributes in the detailed cost breakdowns – Commodity specific breakdowns also enable buyers to collect information on physical part attributes that drive costs. The information collected can then be used to easily search for similar parts in cost catalogues and to develop should-be cost models.
- Make the use of cost breakdowns mandatory for all price discussions – They require cost breakdowns not only for initial sourcing but for all decisions regarding pricing including material price adjustments and design changes.
- Aggregate cost breakdown data – Almost all buyers analyze the cost breakdowns for the decision that is in front of them at the time. High performers take the time to aggregate data and analyze it over time driving suppliers to quote with higher accuracy and consistency.
By incorporating these 4 steps, buyers can achieve better results in negotiating with detailed cost breakdowns.
For 15 years APD has been providing proven 1-day workshop courses that provide buyers with the critical knowledge and tools to understand should-be costs and achieve savings. The hands-on courses include Excel based tools that enable participants to quickly put into practice proven methods to identify, understand and deliver savings opportunities.
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