Experience has taught us that buyers who have cost breakdowns entrenched as a part of their sourcing process achieve prices that are 2-5% lower than buyers who buy the same commodities without detailed cost breakdowns.
What differentiates those who save 5% from the ones that only save 2%? Following are the key differentiators employed by high performers:
- They 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 commodities manufacturing process.
- Physical part attributes are included in the detailed cost breakdowns. Commodity specific breakdowns also enable buyers to collect information on physical part attributes that dive costs. The information collected can then be used to easily search for similar parts in cost catalogues and to develop should-be cost models.
Download APD’s detailed cost breakdowns:
- Use of Cost breakdown’s is 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.
- They 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.
If you want to learn how to develop, analyze and negotiate with commodity specific detailed cost breakdowns plan on attending our June 25th course, Building and Negotiating with Cost Breakdowns. Click here for more info.