Originally published by Quantzig: Should Cost Modeling: A shot in the arm for all your price negotiation initiatives
Unleashing Should Cost Modeling: Revolutionizing Price Negotiation Strategies
Businesses often resort to value analysis, value engineering, and strategic sourcing for cost-cutting, but in today's rapidly evolving industries, traditional cost analysis methods are inadequate. The advent of should cost modeling introduces a transformative approach to cost analysis and negotiation strategies.
In the realm of procurement and price negotiation, businesses are increasingly turning to powerful tools like should cost modeling. This methodology involves a thorough analysis of various cost components associated with a product or service, providing businesses with a strategic advantage during price negotiations. Explore the nuances of should cost modeling, its approach, challenges, and the substantial benefits it offers.
**Advancements in Technology and Analytics:**
Technology and analytics advancements enable structured cost modeling approaches, with should cost modeling leading the way. This approach helps businesses identify and optimize cost drivers, providing actionable insights for procurement and sourcing teams, aiding in price negotiation, and supporting designers and product developers in achieving target costs early in the product development phase.
**Understanding Should Cost Analysis:**
Should cost modeling is an advanced analytics methodology determining a product's cost based on various impacting factors, including raw materials, manufacturing overheads, and other contributing costs.
**The Purpose of Should-Cost Modeling:**
Should cost modeling empowers businesses to analyze design concepts, focusing on target costs in the initial product development phase. By providing detailed cost and pricing insights early on, this approach ensures a fail-proof sourcing strategy.
**Challenges in Should-Cost Analysis:**
- **Data Accuracy and Availability:** Obtaining comprehensive and accurate data for all cost components is challenging but can be addressed with advanced data analytics and sourcing strategies.
- **Dynamic Market Conditions:** The volatility of market conditions requires continuous monitoring and agile adaptation to ensure accurate scenario modeling.
- **Cross-Functional Collaboration Barriers:** Seamless collaboration across diverse business functions can be achieved through effective communication channels and a collaborative culture.
- **Modeling Complexity:** Simplifying models without compromising accuracy involves leveraging advanced analytics and modeling tools.
**Benefits of Should Cost Analysis:**
- **Cost Optimization:** Identifying cost-saving opportunities across the supply chain enhances profitability and competitiveness.
- **Negotiation Leverage:** Comprehensive cost insights provide a strategic advantage in price negotiations, ensuring informed and data-driven negotiations.
- **Supplier Relationship Management:** Transparent and collaborative relationships with suppliers are facilitated through should cost modeling, achieving mutual cost efficiencies.
- **Risk Mitigation:** Identifying potential risks in the supply chain becomes more effective, allowing for proactive risk mitigation strategies.
- **Strategic Decision-Making:** Should cost modeling provides a foundation for strategic decision-making, aligning procurement strategies with overall organizational goals.
- **Continuous Improvement:** Regular should cost analysis allows for ongoing refinement of cost models, becoming a key aspect of cost management strategies.
**Quantzig's Approach to Should Cost Analysis:**
Quantzig's comprehensive approach to should cost modeling involves six phases:
- **Data Acquisition:** Gathering data from various sources, including ERP platforms, bill of materials database, spend data, and purchasing invoices.
- **Methodical Data Expansion:** Analyzing collected data sets and cost drivers, including raw materials costs, manufacturing overheads, logistics, and labor costs.
- **Classification of Cost Drivers:** Identifying and classifying cost drivers into homogeneous groups.
- **Cost Modeling:** Outlining annual volumes, batch quantities, and unit of measure, selecting processes and materials, and defining cost parameters.
- **Generation of Should Costing Insights:** Developing crucial cost insights using proprietary cost analysis models and price analytics platforms.
- **Reporting:** Generating reports with a detailed breakdown of processes, material costs, non-recurring engineering costs (NRE), and authorization costs.
Discover the transformative power of should cost modeling and its potential to revolutionize your cost analysis and negotiation strategies. Contact our analytics experts today for a competitive edge.
