Purchasing Cost Models: How Buyers Can Use Cost Models Effectively

This blog is the third of a three-part blog series designed as follows:

Earlier this year, we surveyed over 30 sales and marketing professionals and CEOs at automotive suppliers to understand which types of cost models their customers were using and how they are using them. Their insights, added to our experience, provide interesting insights into the use of cost models in the automotive industry and how buyers can utilize them more effectively.

The key responses are as follows:

  • We have seen a marked increase in the use of cost models by buyers.
  • Most growth is in the use of open book cost models and hyper-optimized models.
  • In some companies, how the buyers use the models from one buyer to another is very consistent. In others,  it varies significantly.  Some buyers are using the models as collaborative tools while others are using the same models as competitive hammers. In these cases, the interviewees expressed a lack of trust with their customers.
  • While customers ask for detailed cost breakdowns, how buyers use them also varies. In some cases, buyers strive to understand the rationale behind the breakdowns. If a supplier changes the pricing to become more competitive in pricing, the buyer strives to understand how the supplier was able to change processes or materials to obtain the lower prices. Other buyers accept the lower prices without question even though the cost breakdown may indicate a negative profit margin was input just to achieve the buyer’s target pricing.

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From this survey and our experience, we identified two major conclusions about cost models:

  • How buyers use cost models can lead to the development or the loss of trust in the quotation process and the cost models.
  • Consistent collaborative application of models across a company raises the trust level between the suppliers and customers.

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