Quotation Whack-a-mole

In whack-a-mole a person hits the mole forcing it down only to have it pop right back up in another location.  In quotation whack-a-mole buyers push on an area of supplier costs to get pricing to go down only to have costs pop-up in another area bringing prices up as well.  Buyer and suppliers continue this game through multiple rounds of quotes on each piece of business to be awarded.

So, what is the alternative?  We recommend that buyers stop playing the game altogether and instead work with suppliers to understand and achieve optimal costs.

Since buyers control the sourcing process, they initiate the game by requesting multiple quotes from suppliers before sourcing the business.   Instead, for most sourcing decisions buyers should set up an Optimal Cost Process that provides suppliers only one opportunity to quote and communicate expectations that cost breakdowns are true reflections of actual cost.

Buyers should then review the supplier quotes to verify them and gain a better understanding of what is driving costs on their commodity.  This knowledge can be used to develop should-be models for future quote validation and cost estimation.

Below is a comparison of the Whack-a-Mole and Optimal Cost Processes


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Here are some of the major differences in approach:

Whack-a-mole  Optimal Cost Methods 
  • Most business is sourced based upon multiple rounds of quotations.
  • Buyer cost breakdowns are not commodity specific providing lots of ways for costs to pop-up 
  • Most business is sourced based upon one round of quotations.
  • Commodity specific breakdowns and reflect accounting methods used for the manufacturing processes 
  • Breakdowns are only reviewed for current decision 
  • Data is aggregated across time and commodities and used to confirm every decision 
  • Buyers try and dictate specific rates for overheads/SG&A 
  • Buyers understand how suppliers calculate their rates 
  • Suppliers infrequently provide cost breakdowns with their quotation 
  • All suppliers provide breakdowns on all quotations

 

 


  

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