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cost analysis

SpendEdge’s Supplier Cost Analysis Solution Helped a Construction Equipment Manufacturer to Identify $7 Million in Savings

US Construction Equipment Industry Overview 

The construction equipment industry in the US produces equipment for residential, nonresidential, highway and other infrastructure construction. Demand for industry products is based on the levels of private construction spend and infrastructure projects. However, the US construction equipment industry is highly globalized and susceptible to changes in global economic conditions. In recent years, the industry has been challenged by the appreciating US dollar and exchange-rate dynamics.

Business Challenges Faced

The client, a subsidiary unit of a large construction equipment manufacturer had a distinctive business model than other units. Large equipment subsidiaries of the parent company sold high revenue products with minimal competition, allowing them to bear higher overheads. However, the client sold high volumes of smaller and low priced machines with the lean competition.

During China’s slump and government’s trade war, the client came under high pressure from the parent company to reduce the cost of goods sold (COGS). Since purchased parts constituted most of the client’s COGS, it realized the need to reduce the direct material spend. However, it required delivering a greater amount of value to suppliers without asking for price reductions or hampering supplier relationships.

Want to know how performing supplier cost analysis can help you make informed purchasing decisions? Request a free proposal and we will get back to you with customized supplier cost analysis solutions. 

 

Our Research Approach

To address the specific needs of the client, the supplier cost analysis team at SpendEdge adopted a three-phased approach. The first step involved economic costing in which a top-down analysis of supplier prices was carried out by the experts based on the financial statement from suppliers and their industry comparable. Historical trend modeling was performed in the next step to examine the changes in costing inputs such as raw material, energy, overtime vs. historical supplier pricing. Finally, the best cost modeling techniques were identified based on the supplier’s unique products.  

With the supplier cost analysis solution, the client created three independent assessments and provided a verified, triangulated cost that can be trusted by suppliers as a solid data point. They gained a detailed understanding of the various components and identified potential suppliers to procure products and services at the right prices.

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Engagement Outcome 

The comprehensive supplier cost analysis helped the client to analyze over 50 suppliers accounting for $200 million of OEM spend. This helped the client to identify $7 million of extra profit apart from identifying several other cost savings opportunities. Within a short span of time, the client became one of the most profitable divisions in the parent company.

Conducting supplier cost analysis is crucial for companies to better negotiate with suppliers. Subscribe now to access accurate supplier cost analysis insights from our procurement experts. 

How to Perform Supplier Cost Analysis? 

  • Develop a supplier cost analysis template that can cover direct and indirect costs along with the inflation/expansion costs.
  • Calculate benefits such as reduced taxes/fees and increased output. 
  • Collect the discrete cost and benefit numbers to determine the net result on cash flow over time.

To know how you can successfully perform supplier cost analysis, request for more information from our analysts.

IR23

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

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.

Want to know how cost model analysis can help you to analyze the impact of each cost driver for your business. Get in touch with our experts today!

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.

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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.

Ever wondered how the best in class companies are utilizing cost model analysis engagement? Request a free demo and know how our experts can guide you in conducting a precise total cost analysis.

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IR31

Best Practices for Cost Benefit Analysis

Cost benefit analysis is basically a technique that is used to analyze business decisions. More precisely, it is used to compare the total costs of a project or a program and the benefits derived out of it. Cost benefit analysis helps choose the best approach and evaluate the quantitative and monetary impact. As a result, it can be said that cost benefit analysis helps in deriving the factors, which influence the business in the short and long-term.

According to the experts at SpendEdge, “cost benefit analysis helps the management to gain knowledge about pricing strategies and its effect on the supply chain; thus, helping build strong supplier relationships and driving profitability.”

Cost benefit analysis stepsContact US

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Answers to the questions

Cost Benefit Analysis for a Leading Player in the Mining Industry – A SpendEdge Case Study

Business Challenge

The mining industry client was facing challenges in identifying the most cost-effective blend of counter-measures to save themselves from a potential loss in the coal production category.

About the Client

One of the fastest growing mining industry firms, employing over 1500 professionals across various economies. Their main objective is to enhance value for stakeholders by discovering, acquiring, developing, producing, and marketing mineral resources profitably, especially in the segment dealing with coal production.

Want market-specific insights on the benefits cost benefit analysis? Request a FREE proposal. request proposal

Engagement Overview

A leading firm in the mining industry, specializing in the coal production category, was looking at developing a cost model for realistic apportionment of costs incurred for each product and sub-products that are part of the operation. To do so and to enhance business efficiency, the client approached SpendEdge to help them leverage cost benefit analysis based solutions. A detailed quantitative analysis of various cost factors within the supply chain network was carried out to identify the indirect and direct spend categories.


Benefits of the Engagement

The cost benefit analysis engagement helped the mining industry client to understand the economic impact of inappropriate business decisions. The developed cost benefit analysis model helped them control indirect costs and save themselves from a potential loss. Our cost benefit analysis experts worked as an extension of the firm to uncover major opportunities for improving their sourcing strategies by controlling indirect and direct spend.

Importance of Cost Benefit Analysis in Procurement

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Leveraging Cost Model Analysis for a Leading Player in the Food and Beverage Industry, Specializing in Manufacturing Processed Foods

Processed foods include food items that have been altered in some way during preparation. Not all processed foods are unhealthy, but some processed foods may contain high levels of salt, sugar, and fat. Food processing may be classified into the following categories:

  • Freezing
  • Canning
  • Baking
  • Drying

The global processed foods sector is a major segment of the food and beverage industry. Processed foods manufacturing companies generate revenue from the sale of food and ingredients to a whole host of customers, ranging from supermarket chains to restaurants and other players further down the processing chain. Processed foods have, on average, delivered highrequest free proposal single-digit annual total returns with much less volatility than the broader market indexes.

The Business Challenge and Journey

The client, a leading player in the food and beverage industry, specializing in the manufacture of processed foods, was looking at leveraging SpendEdge’s cost analysis solutions. They wanted to identify the strengths and weaknesses in their transactional activities for functional business requirements or projects investments. The client was facing several issues related to their inefficient supply chain strategies. The company’s supply chain management executives recognized the tremendous benefits of implementing a cost analysis study. As such, they were looking at reducing the company’s risk profile by improving the efficiency of their overall supply chain operations.

To identify challenges in the supply chain functions, the cost analysis experts at SpendEdge carried out extensive research, comprising interviews and discussions with prominent stakeholders in the food and beverage industry. The experts also compiled information across a wide array of reliable sources such as trade shows, company presentations, industry forums.

Fundamental questions answered in this cost analysis study include:

Processed Foods

Why should you leverage cost model analysis?

Cost analysis is an essential way to identify and estimate the critical cost elements across a supply chain. Leveraging cost analysis enables organizations to determine the best negotiation levers, while simultaneously achieving the lowest cost mix.


The Result

SpendEdge’s cost analysis solution offered relevant insights that helped the processed foods manufacturing company to develop relevant strategies to enhance their business operations.

Our solution also enabled the client to identify, adapt, and implement the best practices that produced the best performance results in the processed foods sector. Moreover, the cost analysis solution enabled the client to achieve breakthrough improvements in their overall supply chain performance. Furthermore, it offered relevant insights to better understand the market scenario, supplier negotiation strategies, industry standards, and expectations.


Processed foods market trends:

  • The shift in global demand- Emerging markets such as Indonesia, India, Malaysia, and China are expected to drive the growth of the processed foods segment. This can be attributed to the increase in export and import of processed foods. Also, manufacturing and processing of foods will gradually shift to these markets, to be close to a growing customer base.
  • Increase in urbanization- It is estimated that by 2050, about two-thirds of the global population will be living in cities. This is expected to increase the demand for processed foods and meat protein in developing countries.
  • Growing demand for food- The growth in global population will directly affect the demand for processed foods. Also, to feed the global population, the agricultural production will also have to increase in developing regions.

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