A Should-Cost Model is a framework used in procurement to estimate the ideal cost of a product or service based on its components, production processes, and market conditions. This model enables organizations to identify cost-saving opportunities by comparing the calculated optimal costs against supplier quotes, thereby driving informed negotiations and procurement strategies.
Key Benefits
– Cost Predictability: The Should-Cost Model provides a structured approach to estimating costs for procurement projects, enhancing transparency and predictability in budget allocation.
– Enhanced Negotiation Leverage: By understanding the cost drivers, organizations can negotiate more effectively with suppliers, leading to better pricing and contract terms.
– Value Engineering Opportunities: This model helps identify inefficiencies and cost-saving opportunities in the supply chain, encouraging innovation and cost-effective design.
– Supplier Collaboration: Encourages a partnership approach with suppliers by focusing on shared cost insights and mutual benefits rather than adversarial price bargaining.
– Strategic Decision Making: Enables informed decision-making by providing detailed insights into cost structures, supporting long-term strategic planning and procurement excellence.
Related Terms
– Cost Predictability: The Should-Cost Model provides a structured approach to estimating costs for procurement projects, enhancing transparency and predictability in budget allocation.
– Enhanced Negotiation Leverage: By understanding the cost drivers, organizations can negotiate more effectively with suppliers, leading to better pricing and contract terms.
– Value Engineering Opportunities: This model helps identify inefficiencies and cost-saving opportunities in the supply chain, encouraging innovation and cost-effective design.
– Supplier Collaboration: Encourages a partnership approach with suppliers by focusing on shared cost insights and mutual benefits rather than adversarial price bargaining.
– Strategic Decision Making: Enables informed decision-making by providing detailed insights into cost structures, supporting long-term strategic planning and procurement excellence.
References
For further insights into these processes, explore Zycus’ dedicated resources related to Should-Cost Model:
- Bridging the gap between technology and people – A Zycus and MSU study
- Accounts Payable Challenges: How to efficiently process non-PO Invoices?
- Supplier Management -Benefits, Process, & Best Practices
- Strategic GenAI Adoption: A Blueprint for Modern Procurement Leaders
- Insights on Global Procurement Transformation
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