CASE STUDY

Cost Model Analysis: Assessing the Impact of Each Cost Driver on the Overall Cost and Ensuring Low-cost Raw Material Sourcing for a Food Packaging Company – SpendEdge

Mar 11, 2019

The Business Challenge

The client, a renowned company in the food packaging industry in the US, was interested in developing a cost model analysis process for their company. The aim of this process was to handle and store at least 1000 units of packaging materials in the inventory. They wanted to assess the impact of each cost driver on the overall cost and gain detailed insights into the costs incurred by their packages to increase the value proposition for their customers. Furthermore, with the aid of a cost model analysis engagement, the client wanted to identify cost elements incurred by their products in the inventory.

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Solutions Offered

To conduct a cost model analysis study for the client, the experts at SpendEdge adopted a comprehensive two-step research methodology, which involved primary and secondary research coupled with scrupulous qualitative and quantitative data assessment techniques. This enabled the client to manage their inventory and supply chains more efficiently.

In a span of three weeks, the client obtained comprehensive insights into the costs incurred by their own packages in material inventory, enabling them to increase the value proposition towards their customers. The cost model analysis also helped the company to determine the total cost as well as cost per activity cost for 1000 units of material. The analysis helped the client to understand negotiation levers adopted by suppliers and ensured low-cost raw material sourcing.

Key Findings

The cost model analysis helped the food packaging company to identify the key cost elements and determine the costs associated with individual activities carried out in material inventory. They also found out that external storage was a more financially viable solution than internal storage, especially for materials that are stored for a long period of time. Additionally, the client was able to explore the possible cost-saving opportunities and reduce costs related to the packaging system by 19%.

What is the Purpose of Cost Model Analysis?

For businesses to outclass their competitors, it has become imperative to get the most out of every idea, option, and investment. The cost model analysis helps companies to identify the benefits of a business strategy and the costs associated with it. Also, it allows companies to assess the impact of each cost driver on overall cost and help them to negotiate levers adopted by suppliers to ensure low cost raw material sourcing.

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