Originally Published on: SpendEdge |Unlocking Cost Opportunities with Today’s Should-Cost Analysis

Pioneering Next-Level Efficiency and Cost Optimization Strategies

In the ever-evolving realm of procurement, progressive organizations harness sophisticated tools to drive unparalleled business growth. A standout among these tools is should-cost analysis, unraveling the intricacies of designing, manufacturing, and delivering products or services. This illuminating exercise empowers procurement stakeholders with profound insights into critical cost drivers, enabling the establishment of transparent price benchmarks, formulation of effective negotiation strategies, and identification of opportunities for overall procurement enhancement.

Adapting to the Dynamics of Modern Procurement

In the rapidly changing landscape of modern procurement, achieving operational excellence and conducting thorough cost-benefit analyses are imperative for maintaining a competitive edge. Should-cost analysis equips procurement functions with the capability to navigate challenges throughout the entire product lifecycle. Automation, propelled by parametric cost models, extends the applicability of should-cost analysis, making it accessible for large companies with diverse product catalogs or compressed production cycles. The latest analytic methodologies enable the examination of thousands of component combinations based on just a few inputs, rendering should-cost analysis viable across various industries.

Benefits Unveiled by Should-Cost Analysis:

Enhancing Procurement Function Efficiency:

• Should-cost models dissect the underlying cost structure, offering insights into opportunities for improving efficiency in product purchase, production, delivery, and design.
• Provides visibility into material, labor, and machine prices, elucidating how each cost component contributes to the overall product or service cost.

Making Ongoing Cost Savings Integral:

• Immediate savings in product and service costs are realized through should-cost analysis.
• Empowers organizations to achieve ongoing cost savings by combining should-cost capabilities with robust vendor management approaches.

Gaining Control Over Costs and Boosting Margins:

• Serves as the first step toward establishing a cost engineering function.
• When implemented effectively, this function allows procurement and product development teams to control costs, enhance margins, and create customer-centric products.

How SpendEdge Facilitates Should-Cost Analysis:

Maximizing Profits through Precise Cost Analysis:

• SpendEdge’s seasoned experts offer comprehensive should-cost models detailing each cost element.
• Provides a holistic view of critical cost drivers, enabling organizations to prepare for and respond to various risk scenarios promptly.

Effective Negotiation with Suppliers:

• While not the sole factor, cost remains a crucial consideration during supplier selection and negotiation.
• SpendEdge’s should-cost models aid organizations in negotiating costs effectively by offering visibility into supplier margins.

Identifying Hidden Costs for Improved Savings:

• Through should-cost analysis, SpendEdge identifies the drivers behind overhead expenditures, paving the way for cost-saving initiatives.
• Assists in choosing cost-effective alternatives, replacing high-cost items with more budget-friendly options.

Success Story: SpendEdge's Impact on a CPG Client's Packaging Material Costs:

A global CPG company collaborated with SpendEdge to uncover the true cost of its packaging material. The client sought to precisely calculate the should-cost for laminated tubes used in its personal care segment. SpendEdge’s analysts conducted a thorough cost engineering exercise, evaluating various cost components and providing the client with a dashboard to visualize the true cost of manufacturing different types and sizes of laminate tubes.

The exercise not only validated the client's current market prices but also offered crucial insights into supplier margins. Armed with this information, the client could strategically negotiate with suppliers during contract renewals, resulting in enhanced visibility and cost control.

Connect with SpendEdge now to revolutionize your procurement strategies!