BLOG

Driver Based Planning and Cost Modeling – the New Secret Sauce for Success?

Jun 20, 2017

Traditional costing methods are deep rooted within the organizations which leverage it to determine a product pricing strategy. The traditional approaches have time and again proved to be highly inaccurate, expensive and a time consuming process. It is about time that the organizations adopt the modern cost modeling and budgeting approaches. Cost modeling analysis involves identifying the material, production and labor costs along with the profit margin in order to estimate the manufacturing cost of a product or service. It helps the organization to take strategic decisions based on accurate actionable insights. The modern cost modeling tools and techniques promise high level of precision, accuracy and quality. Cost modeling strategies accounts for the gaps in processes, capacity utilization and geographical differences and other factors pertaining to manufacturing of the product.

Cost modeling enables the management to identify the cost drivers and cost components thereby providing insights to make strategic procurement decisions. These cost drivers help the chief procurement officers to devise strategies and business plans that drive profitability optimizing the organizational efficiency. Similarly, driver-based planning is a management’s approach that helps determine the key business drivers to forecast and develop strategies for future and identify the variables that affect the organizations success. The objective of driver based planning is to lay emphasis on strategic planning based on success drivers through a mathematical model by using various advanced data modeling and cost modeling tools.

Driver-Based Planning and Cost Modeling – What, Why and How

Both driver-based planning as well as cost modeling base their forecasts on operational and cost drivers respectively. Operational drivers include product units, customers, number of transactions, number of deliveries, etc. while cost drivers include direct costs and indirect costs of material, production and labor as well as sales and administration costs. Both use mathematical and statistical models to determine the drivers and thereby facilitates in budget planning, budget allocation and forecasting.

Using a combination of cost modeling and driver-based planning helps the management in reducing errors, saving time and driving profitability of the business. This integrated approach not only helps in determining the operational drivers and cost drivers of various business activities but also helps in modeling financial data so as to forecast sales, profit margins, enables spend management and determine the future capital requirements for the organization. This empowers the management and category purchase managers to devise effective budgeting strategies and enable better decision making based on accurate forecasts and cost models.

Cost modeling combined with a driver based planning approach induces flexibility, increases usability and utilizes the knowledge available at different levels in the organization. Cost modeling and driver based planning is the new secret sauce for the organization to succeed, drive profitability and gain a sustainable competitive advantage in the market. At SpendEdge, we offer real time accurate insights that help organizations to identify the factors that drive the topline growth, analyze each cost element, determine the components of a supplier’s product pricing strategy and assist the organizations to source from the best supplier at the best price.

For more information on cost modeling, cost modeling tools, predictive modeling, cost estimating software, cost analysis, cost reduction, and cost management

get in touch

 

 

Getting Down To Business

We are offering Free Trials to all our customers or prospects who have been impacted positively or negatively by Covid-19 and are looking to connect with prospect buyers immediately.

Contact us

Sourcing and Procurement Market Intelligence Services

Products and Tools

Featured

Services Overview

Category Market Intelligence

Supply Market Analysis

Low-Cost/Best-Cost Country Sourcing

Benchmarking

Spend Analysis

Cost Modeling and Should-Cost Analysis

Total Cost of Ownership (TCO) Analysis

Supplier Risk Analysis

Supply Chain Risk Assessment

Supplier Sustainability Assessment

Commodity Price Forecasting

Category Management

Supplier Negotiations

Contract Management

Procurement Store

Purchase Ready-to-use Reports

SEinsightsTM

Our Robust Procurement Platform

BizVibeTM

Suppliers and Buyers Marketplace

SUPPLY MARKET ANALYSIS FOR A METAL MANUFACTURING COMPANY HELPS ACHIEVE ANNUAL SAVINGS OF $15 MILLION

Industries

Industries Overview

Automotive and Tire

Banking, Financial Services and Insurance

Biotechnology, Pharmaceutical and Life Sciences

Chemicals

Energy

Food and Beverage

Industrial and Manufacturing

ICT, Media and Entertainment

Mining, Metals and Minerals

Retail and CPG

Transportation

INCREASING LOCAL PROCUREMENT BY 28% FOR A COMPANY IN THE METALS AND MINING INDUSTRY – A CASE STUDY BY SPENDEDGE

Resources

Featured

Resources Overview

COVID-19 Resources

Blogs

Case Studies

Whitepapers

Webinars

Press Releases and Media Mentions

5 KEY CORONAVIRUS RISK ASSESSMENT STRATEGIES TO OVERCOME HEALTHCARE SUPPLY CHAIN CHALLENGES

IDENTIFYING STRATEGIC PURCHASING PRACTICES FOR A COMPANY IN THE US FOOD SERVICE INDUSTRY | SPENDEDGE’S LATEST SUCCESS STORY

COVID-19

Featured

Overview

Buyers

Diagnostic Test Kit

Additional Resources
Contact

A LOOK INTO THE FUTURE OF THE FOOD AND BEVERAGE INDUSTRY AFTER THE COVID-19 PANDEMIC

Identifying the Top 100 Coronavirus (COVID-19) Test Kit Manufacturers Across Regions

Clients

Featured

Clients Overview

Who We Serve

Case Studies

SUPPLY CHAIN MANAGEMENT HELPS AN IMPORT AND EXPORT INDUSTRY CLIENT ENHANCE SUPPLY CHAIN VISIBILITY

REALIZING SAVINGS OF $15 MILLION IN PACKAGING SPEND FOR AN FMCG CLIENT – PACKAGING SOURCING STRATEGY

About Us

News

About SpendEdge
Why SpendEdge?
Vision, Mission and Values
Clients
Social Impact
Global Offices

Press Releases and Media Mentions

Upcoming Events & Webinars
Request Free Proposal