Tag: Cost modeling


End of an Era for TV Advertising? A Procurement View

As you make your way through the blog, you would have already got past many advertising on your desktop or mobile device right from website ads, Google paid search to promotional e-mails. You may struggle to remember the last time you saw a TV commercial or turned the TV on for that matter. If TV advertising is dead then why are TV advertising rates still high with brands willing to pay millions of dollars just to get their spot there? Although the market share of traditional media like radio and newspaper is dwindling, TV advertising is still unshaken, which can be justified by its steady growth rate with a CAGR of over 4% (SpendEdge Report: Global TV Advertising Market – Procurement Market Intelligence Report 2017-2021).

Request Free SampleGrowth Constraints of TV Advertising Market
Brands on an average spend 8-10% of their marketing budget for the TV medium. The high cost of purchasing TV advertisement is driving the brand managers to evaluate alternate advertising channels. Additionally, it is difficult to determine the ROI of TV ad campaigns making the companies skeptical about massive investments in this medium. The emergence of the alternate channel along with growing use of mobile devices could hinder the growth of this market.

Shift from TV to Online Platform?
It has been observed that brands are reallocating their TV advertising budgets to online platforms by analyzing the recent trends. As per the report, the global digital advertisement spend had surpassed global TV advertisement spend in 2016. However, TV advertising agencies can benefit from this trend as broadcasting agencies will lower the TV advertising costs to attract brands and sustain in the market. Additionally, the shift towards digital medium is moderate in APAC and MEA regions due to lack of penetration from online platforms.

Is the TV Advertising Market Growing?
The growth prospect for TV medium may look bleak, but certain factors are driving the growth of this market. The most important one being increasing penetration of DTH across emerging markets. DTH allows for increased transparency and broadcasts content based on personalization and customer recommendation to ensure targeted reach. The most exciting growth prospects come from online businesses who are opting for TV medium to reach the masses and thus contributing around US$860-US$865 on TV mediums in the US.

Read more about the procurement view of the TV advertising market along with supply market landscape, pricing strategies, pricing trends, negotiation strategies, cost modeling, and procurement insights in SpendEdge’s upcoming report on the global TV advertising market.

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Growth Drivers for the Real Estate Industry – Property Purchasing and Leasing

The real estate industry is a big business generating billions of dollars in revenue across the globe. It is also a significant contributor to the GDP of many developed nations. The growth of the real estate industry signals the base of a strong economy; whereas, weakening of the real estate market could lead to an economic collapse. For instance, the real estate bubble of 2008 in the US caused worldwide economic depression. SpendEdge’s strategic procurement reports show that the real estate industry has been experiencing steady growth over the years due to rapid urbanization and rising household income. Real estate property purchasing and real estate leasing are the two modes of real estate acquisition. Here are the major factors driving the growth of two acquisition modes in the real estate industry:

Real Estate Property PurchasingReal Estate Property Purchasing

  • The growth in a nation’s GDP coupled with rapid urbanization leads to the increased demand for more commercial space. Increasing number of jobs are created in a growing economy, and people travel or migrate to such countries for better opportunities. Thus, it calls for an increase in available commercial space like hotels and retail store
  • The growth of the real estate property purchasing market is also fueled by the growth of real estate leasing. Properties are bought with a view to earn steady income by leasing it
  • Commercial entities consider real estate property purchasing as a tax saving instrument as governments provide tax credits, deductions, and subsidies. Also, to boost growth of the the real estate industry, governments provide tax benefits to encourage general people to purchase of real estate

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  • Increasing interest rates discourage the buyer from purchasing real estate in many parts of the world. As a result, most buyers have started leasing properties
  • The growth in the real estate leasing market can be attributed to the explosion of MNCs and start-ups in the global economy. MNCs and start-ups prefer to lease the property for office space
  • Another growth driver for the real estate leasing industry is the emergence of financial and IT hubs. Financial and IT giants outsource business processes to emerging economies and are responsible for some of the top leasing transactions worldwide


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Tackling Volatile Commodity Prices to Improve Profitability

In today’s dynamic market space, it’s extremely surprising to see that the price of the final product is almost always constant even when the raw materials, services, and other commodity prices are fluctuating so often. Procurement managers are always on the lookout for sourcing materials at the lowest cost, but sometimes end up buying even when the price is high to meet the production schedule. However, by assessing commodity price volatility and adjusting sourcing strategies, procurement managers can improve the company’s profitability. Adjusting the sourcing strategy does not mean making bulk purchases when the prices are low as it may lead to wastages.

Risk Mitigating Strategies to Tackle Volatile Commodity Prices

Futures Procurement Contract

One of the best ways to mitigate risks arising from commodity price volatility is to sign a legal agreement to buy a particular commodity at a predetermined price at a specific time in the future. Futures contract is widely practiced in the oil and gas industry alongside other commodities such as industrial metals, precious metals, seeds, livestock, and grains. This allows the company to manage their risks from fluctuating commodity prices and have more predictable revenue.Get More Info

Keep Track of Price and Technology Trends

Companies don’t always have the luxury to mitigate increased commodity prices to their customers. Major commodity prices can be tracked and predicted based on historical data and upcoming trends. Apart from using the standard forecasting tools, observing the current market trends, the world economy, and other substitutes can prove to be a good indicator to predict commodity prices. For instance, increasing coal prices, development of renewable energy sources, and China’s production capacity can be speculated to estimate the price for aluminum.

Bundling Services

Procurement managers who are unable to mitigate their risk arising out of volatile commodity prices could revert to product and services bundling with a trusted supplier. Bundling products or services together helps stabilize the final price of the particular commodity so that managers can keep the price of the final product stable.

Price Forecasting Models

The advent of big data has empowered purchase managers with an immense amount of data and information. With proper prediction and analysis of factors that influence the commodity prices, an accurate prediction of future commodity prices can be made. Based on this information, purchase managers can make bulk purchases or defer the process to improve overall profitability.

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Top 4 Advantages of Cost Modeling

Organizations often shy away at the mention of cost modeling. Most of them find it highly complex and time consuming. Managers are accustomed to make decisions based on instincts and intuitions which more often not wreaks havoc. Owing to globalization, companies have started to realize the benefits of a data driven approach and strategic decision making based on actionable insights. More and more organizations are taking recourse to cost modeling tools and techniques in order to streamline their decision making processes. Cost modeling can be defined as an advanced statistical model that offers accurate cost related insights which benefits the organization and aids in determining the true cost of manufacturing a product or service.

Cost modeling takes into consideration of the various costs incurred by the organization related to material, labor, production, administration, sales, and research and development. It also takes into account the profit margin while determining the manufacturing cost of the product. These insights help the buyer to comprehend the cost components of a suppliers pricing strategy and thereby drive cost savings opportunities for the organization. Organizations have a cost modeling phobia as many feel that it is beyond their understanding.  We, at SpendEdge, give you the top four benefits of cost modeling that management professionals can leverage in order to drive profitability in the organization.

1. Enhances Your Negotiation Skills

Cost modeling is regarded as the numero uno purchasing best practice any procurement professional must possess in order to seal the deal at the best possible price with the suppliers. Cost modeling assists procurement professionals to augment their negotiation skills enabling the buyers to negotiate their terms and conditions. It facilitates the buyers to acquire the materials or services at a fair price and squeeze supplier profit margins.

2. Enables Cost Reduction and Drives Profitability

Cost modeling enables the management professionals to identify the cost components, cost drivers and the causal factors. It facilitates elimination of unnecessary costs and identifies maverick spending. Cost modeling helps in identifying overpriced components and materials with higher profit margins, thereby enabling the procurement professionals to procure the materials at the right price, thereby positively impacting the organizations bottom line and driving profitability in the organization.

3. Improves Supplier Relationship Management

Cost modeling facilitates the organization in improving its supplier relationship management. It enables the top management professionals to identify the right suppliers, strategically source the materials and goods at the optimum price. It also allows coordination between the organization and the supplier by including them in the design stage itself and leveraging the benefits of supplier’s market insights. Cost modeling creates long term relationships and builds trust among both the buyer and the supplier.

4. Facilitates Strategic Decision Making Based on Insights

Any organization can gain a competitive edge by optimizing its costs, achieving its product performance target and cost targets simultaneously. Through cost modeling, top management professionals gain insights that help them to make strategic decisions with regards to budget planning, budget allocation, future planning and new product development. Cost modeling enables them to understand the supply market, supplier pricing strategy and devise a roadmap for the future.

At SpendEdge, we offer granular insights about the buying activities, supplier pricing strategy, supplier benchmarking and trends and forecasts in the industry. This helps the organizations to leverage insights and devise strategies to identify cost saving opportunities and mitigate potential future risks.

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Procurement Market Analysis and Identification of Cost Categories of Molten Salt Tanks Through Cost Modeling

SpendEdge’s recent cost modeling study on molten salt tanks helps suppliers identify the potential cost saving opportunities and assess the cost impact of individual components to improve profit margins in the renewable energy sector.

Growth of the thermal storage sector

The reliability, scalability, and cost-effectiveness of molten salt tanks are propelling the use of thermal storage for storing solar power at an industrial level. The increasing awareness about the depleting energy resources and use of advanced technologies to promote the use of renewable energy is attributed to the demand for molten salt tanks. The initiatives undertaken by various countries across the globe are resulting in the integration of renewable energy sources with main power grid systems. The vendors are trying to venture into such expansion projects to increase their market share and boost their sales revenues. APAC is the fastest growing region with such initiatives and suppliers are focusing on expanding their businesses in this region. The growing focus on advanced testing and commercialization of these storage tanks will help suppliers to access the demand-supply trends and deliver products that meet the end-user requirements.

The latest cost modeling study by SpendEdge offers an in-depth understanding of the pricing models, supplier market landscape, and key market drivers of molten salt tanks. The study also delivers the identification of key data points, including market prices of raw materials, cost elements and structure, process innovations, and industry best practices. Suppliers in the market are focusing on delivering products that match regulatory compliances associated with energy services and develop cost-effective solutions that meet the ever-surging requirement for clean energy.

Increasing JVs and M&As

The demand for alternative energy sources and increasing requirement for sustainable development is encouraging corporate houses to enter joint ventures and mergers and acquisitions. These are capital intensive deals that support the installations of renewable energy systems which maintain electricity grids. Leading corporate houses like Google, Apple, Microsoft, and Facebook are forming strategic alliances to source renewable energy and promote sustainability creatively. Various vendors are taking advantage of these opportunities to expand their market shares.

Solutions SpendEdge offer to businesses

The latest procurement market intelligence study by SpendEdge offers a holistic overview of the growth drivers and the latest trends in the molten salt tank market. Some of the solutions are listed below:

  • Offer a deep-dive assessment of each of the cost components and drivers to be included in the cost model and impact of labor cost specific to the location
  • Provide insights into the suppliers’ evaluation and selection criteria, suppliers’ operational and functional capabilities, pricing models, and best-in-class procurement practices.
  • Develop a robust cost model based on direct and indirect cost categories
  • Identify key cost drivers to assist the client with consistent cost reduction and increase profitability and stakeholder returns

Read our complete case study titled – Cost Modeling Helps a Leading Molten Salt Tank Manufacturer Identify Potential Cost Saving Opportunities


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The Numero Uno Purchasing Best Practice – Cost Modeling

Top supply chain professionals have ranked cost modeling as one of the critical purchasing skills that managers must have in order to understand what constitutes the cost and thereby drive saving opportunities. Cost modeling can be defined as a process of analyzing costs and profit margins so as to determine the actual cost of manufacturing a product or service. These costs include labor costs, material costs, production costs, and research and development costs among others. Organziations across the globe are striving to adopt strategic decision making based on a structured data-driven approach and as a result cost modeling tools are gaining momemtum. It is considered as a cost estimator that enables businesses to identify cost savings opportunities and thereby drive profitability.

Cost Modeling and its Impact on Purchasing skills

We often hear purchase managers say, “In the market you don’t get what you deserve, you get what you negotiate”. That is why cost modeling is the numero uno purchasing best practice that enhances negotiation skills of sourcing and procurement managers in order to solicit the best possible price from the suppliers. Cost modeling helps purchase managers in following a balanced purchasing strategy, procuring materials from suppliers at a much lesser price and facilitate coordination between them and the suppliers. It enables them to develop realistic and accurate collaborative models by leveraging supplier insights which prove beneficial for all the parties involved.

Cost modeling has the following three benefits at every level of decision making

  • At the strategic level, it helps companies in taking decisions regarding whether to make or buy a product. For instance, the company could produce a part or component in house or understand the shipping economics of outsourcing a product to a low cost country.
  • At a tactical level, cost modeling helps purchase managers to decide between two suppliers supplying the same product.
  • It helps management to determine the set up costs and the optimal order levels at the executional level which helps organizations to eliminate waste, free up working capital and plan the budget.

Organizations must adopt cost modeling in order to enhance their purchasing skills as it helps the managers to get a better understanding of every cost involved in the process right from formulating a strategy, designing and price negotiations. Businesses are adapting and integrating cost modeling with their existing systems to bridge the gap between suppliers and buyers. These cost modeling tools give quick results, accurate insights and help in making informed decisions.

At SpendEdge, we offer a wide range of solutions that help organizations to gain actionable insights at the granular level, identify the cost drivers and cost elements based on credible data sources, and drive strategic decision making based on a data-driven approach. This helps the clients to reduce costs and drive profitability in the organizations.

To know more about cost modeling tools, pricing model, cost modelling techniques and its impact on procurement

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Augment Your Negotiation Skills with Cost Modeling

According to top management professionals, cost modeling is the numero uno purchasing best practice. Cost modeling enables purchase managers to determine the actual cost of manufacturing a product and understand the underlying cost components and cost drivers. By leveraging cost modeling, the procurement and purchase managers gain the upper hand in devising negotiation strategies and helps them to identify understand the costs involved from a supplier’s perspective. Bottom line of the story: cost modeling helps procurement professionals to boost their negotiation skills, thereby driving profitability for the business.

Cost modeling is the analysis of the costs involved in manufacturing a product or service and determining its optimum cost of production so as to earn a fixed profit margin. It takes into consideration material costs, production costs, labor costs, research and development costs, sales and administrative expenses and profit margin so as to arrive at the actual cost. Cost modeling tool enables the buyer to fathom what exactly goes into manufacturing a product, understanding suppliers pricing strategy and drive cost savings opportunities for the organization. It also facilitates collaboration between the supplier as well as the buyer which not only helps them in optimizing costs but also enables material design improvements and provides supplier insights. But how can cost modeling boost managements negotiation skills enhance negotiation strategies, you ask? Here’s how.

“You Get What You Ask for” –  Cost Modeling

Top procurement managers have ranked negotiation skills as one of the important skills a procurement professional must possess. It is an essential trait that enables the buyer to negotiate or bargain the prices of supplies and materials with the suppliers. Negotiation is a process to find a common ground between two or more parties i.e. buyers and suppliers, in order to reach an agreement or achieve a settlement on common grounds that is beneficial to all the parties involved. An effective cost modeling tool enables organizations to comprehend the supplier’s pricing strategy and identify the factors that drive final product pricing such as raw materials, labor, production process, logistics and much more.

Cost modeling helps buyers to seal the deal with the suppliers at the best possible price and squeeze profit margins. This helps them to negotiate the supplier’s terms and conditions and challenge his cost model. Often, the suppliers are compelled to back up the material prices with real cost data which helps the procurement professionals to understand the true manufacturing costs of the product. It enhances negotiation skills and thereby creating opportunities to drive cost savings and profitability. It helps in spend management, identifying each cost component of the product and determining the most expensive components or parts that demand management’s attention.

At SpendEdge, we offer cost modeling and procurement intelligence solutions to organization that help them in reducing costs, drive profitability and create a sustainable competitive advantage based on actionable insights.

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

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.

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Benefits of Cost Modeling for Household Mobility Service Providers

Cost modeling is a game changer for every organization irrespective of the industry it operates in. It is the analysis of all the costs involved in procuring the materials and labor, and manufacturing the product. This helps cost estimation process of the product along with the profit margins and helps the organization to lobby for the best possible price from the suppliers. Cost modeling enables the organizations to effectively negotiate the prices, terms and conditions, and the product quality and quantity with the suppliers and thereby drive cost savings in the organization.

The success of various household mobility or moving services providers highly depends on their ability to identify cost drivers and reduce costs, thereby making it essential for them to adopt cost modeling tools and perform cost estimation analysis. Moving services or house movers providers help consumers relocate their commercial as well as residential belongings or goods to either domestic or international locations. They offer a wide range of services such as packing, loading, unpacking and transferring items from one place to the other.

In the mobility services industry, cost is an important factor and hence, cost modeling fits right in with the organizations objectives. The underlying value proposition of this industry is that it strives to provide convenience and a seamless relocation experience to the customers. Other than the basic relocation services, these mobility services providers also offer value added services like insurance, visa and immigration, storage, repatriation assistance, employee and accommodation services. This leads to extra cost burden for the mobility service providers as there is a risk element attached to it. Many mobility service providers offer both core services as well as value added services to their customers, which is the most important factor that drives the businesses profitability.

Mobilizing Moving Services Costs, the Cost Modeling Way

We have already established the importance of managing costs in the mobility services industry. With the help of cost modeling, organizations can identify the procurement best practices, pricing strategies and key cost drivers. Cost modeling assists organization to bridge the gap between suppliers and cost variables that enable better decision making and strategy creation. One of our clients, a leading mobility service provider, benefitted from our cost modeling and procurement intelligence solutions which helped them create a competitive advantage in the market,

  • By leveraging cost modeling and procurement insights enabled the organization to identify cost drivers such as minimum wage, operational costs, new technology integration, sub-contractor fee, and changes in the prices of the consumables and materials.
  • Cost modeling empowered the organization to take strategic business decisions related to supplier selection and evaluation criteria, and optimizing category spends based on insights.
  • It was also found that the global moving services market is fragmented and highly competitive, which means that suppliers or service providers must utilize cost modeling tools so as to determine profit margins to gain more client accounts and maintain its market share.
  • Service providers with broad offering such as immigration services, employees, accommodation and insurance, achieve economies of scale as compared to others with limited offerings

Organizations can leverage cost modeling tools to identify the cost drivers, improve pricing strategy and billing policies and enable sales personnel to pitch in a better way to the clients. This enables the businesses to reduce errors, speed up the processes and offers simplicity in understanding various strategic plans and pricing strategies thereby reducing costs and driving profitability.

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Building Cost-effective Temporary Staffing Services by Leveraging Cost Modeling Techniques

SpendEdge’s recent cost modeling analysis of the temporary staffing services helps companies in the IT industry to gain visibility on key cost drivers, supplier cost structure, and cost saving aspects of procurement.

Understanding the cost drivers for temporary staffing services

Temporary staffing is contractual based hiring for unforeseen circumstances such as maternity leave, sick leave, peaks in workload, and staff shortage. The flexibility in managing the workforce during peak business and organizations’ need for good quality and cost-effective staffing solutions with shorter TATs is driving the growth in this market. This form of recruiting is advantageous during specific periods and provides an opportunity to the organizations to test new employees before hiring. The service providers in the market are focusing on technological innovations such as ATS and CRM systems to manage the large pool of talent base that suits the requirements of the customers. The suppliers are also bundling core recruiting services with corollary services such as testing, background checks, and contracting to save costs and offer better services to the clients. The team of research experts at SpendEdge offer a clear understanding of the cost drivers, along with valuable information on ways to facilitate judicious price negotiations.

The integration of applicant tracking system (ATS) will help automate the recruitment processes and reduce the amount of paperwork. Many recruitment agencies are adopting ATS technologies to gain a competitive advantage in the recruitment services market. The adoption of integrated ATS will streamline the resume sorting process, which will result in saving time consumed by going through every single resume. An ATS system is designed to help track candidates’ activity to ensure placement quantity, and screens resume to ensure placement quality.

Growing importance of branding

Promoting businesses on social media platforms and focusing on relationship management will help companies build a stronger foothold in the market. The easiest way to source talented candidates is by increasing brand awareness and networking activities. Many companies are adopting branding strategies to help them streamline the recruitment process by aligning its goals, values, and culture and eliminate the need to interview people who may not be the best fit for the organization. By implanting these strategies around 91% of firms saw about 10% growth in 2016, according to the latest market surveys.

Spendedge aftermarketEmergence of app-based recruitment

Technology is driving innovation across different industries and recruitment is using it to source talented candidates from varied locations. Mobile-based applications are gaining precedence over desktop or laptop-based web portals. Recruitment apps aids companies connect with job seekers virtually from anywhere in the world and establish a direct connection between job seekers and recruiters. The use of mobile-friendly landing pages, social media, and mobile applications are the most common strategies adopted by temporary staffing services.

Solutions SpendEdge offer to businesses

The latest project by SpendEdge on the temporary staffing services market indicates cost modeling to be extremely effective when developed in collaboration with suppliers. Some of the solutions offered are listed below:

  • Validate the cost model by conducting primary research with industry experts
  • Provide comprehensive overview of the cost model and key cost drivers such as increase in payroll taxes and complexity of services
  • Design cost models and price negotiation strategies to reduce the dependence on physical offices for service delivery
  • Offer information on strategic selection of suppliers, procurement best practices, cost-saving and cost reduction, and insights that led to optimization of the category spend

Read our complete case study titled – Cost Modeling Helps a Leading Conglomerate with Better Negotiation of IT Temporary Staffing Services


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