Should Cost Analysis, Should Cost

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Cost Modeling and Procurement Solutions Help a Leading Mobility Service Provider

Category Overview

Mobility service providers help buyers move their commercial and residential goods either domestically or internationally. These companies offer all inclusive services for re-locations including packing, loading, moving, unloading, unpacking, arranging of items to be shifted, and value-adds such as visa and immigration, insurance, employee, storage, repatriation assistance, and accommodation services.

The Procurement Pain Point

One of the leading mobility service providers for household goods was looking for a procurement market analysis in terms of procurement best practices, pricing models, and key cost drivers in the industry. The core focus was to identify major gaps in supplier market landscape and cost modeling factors for better decision making and strategy formulation. We at SpendEdge, offer a comprehensive and detailed analysis of the category in terms of major cost components, supplier engagement models, and should-cost analysis.

Procurement Insights Offered and the Outcome

To meet the requirements specific to the needs of the client, we carried out an in-depth primary and secondary research. With our vast database of secondary research resources, highly experienced and dedicated analysts, and critical inputs from industry experts, we incline our research to help the client with deep-dive market insights. Furthermore, we follow a three-step research process which includes establishment of cost elements mentioned in the annual reports provided by the listed suppliers, followed by extensive secondary research to understand the percentage break for each cost element within the overall cost structure.

Our procurement market analytics team evaluated the various cost drivers such as variation in sub-contractor fee, increase in minimum wages, adoption of new technology, and volatility in consumable material and operational costs to design the cost model and gain insights on supplier market landscape.

Business Impact

The core focus of this study was to analyze the crucial aspects of cost modeling to get a clear understanding of the cost drivers, cost categories, and cost-saving opportunities. Furthermore, this study also helped the client with a better understanding of supplier selection and evaluation criteria and insights that can lead to optimization of category spends.

This procurement intelligence study offered the client category assessment, supplier market landscape analysis, and procurement best practices.

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Cost Modeling Helps a Leading Conglomerate with Better Negotiation of IT Temporary Staffing Services

Category Overview

Temporary or contractual labor refers to a provisional group of workers who work for organizations for short duration on a contractual basis. To meet temporary requirements, such employees can be easily recruited with the help of sophisticated online and mobile platforms.

The Procurement Pain Point

One of the leading conglomerates in Europe was facing challenges with understanding cost structure of leading IT temporary staffing service providers. Key pain points included gaining visibility on supplier cost structure, key cost drivers, and cost saving aspects of procurement. Despite being one of the top players in the industry, the client lacked the expertise and tools to provide the sourcing team with deep insights into price negotiation. With our precise research methodologies and extensive experience in should-cost analysis, we helped the client gain a clear understanding of the cost drivers, along with valuable information on ways to facilitate judicious price negotiations.

Procurement Insights Offered and the Outcome

With our vast database of secondary research resources, highly experienced analysts, and critical inputs from industry experts, we helped the client identify cost drivers and potential cost saving opportunities. We followed an extensive three-step research process encompassing establishment of cost elements mentioned in the annual reports provided by the listed supplier. This was further followed by refined secondary research to understand the percentage break for each specific cost element within the overall cost structure. We also validated the cost model by conducting primary research with industry experts.

Business Impact

This procurement market intelligence study was to offer the client a comprehensive overview of the cost model and key cost drivers such as increase in payroll taxes and complexity of services and reduced dependence on physical offices for service delivery. Furthermore, this study helped the client with procurement best practices, strategic selection of suppliers, cost-saving and cost reduction, and insights that led to optimization of the category spend.

This procurement intelligence study offered the client category assessment, supplier market landscape analysis, and procurement best practices.

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The Present and Future of Should Cost Analysis

Should Cost Analysis can be termed in one word as a cost estimator. It is a process of determining what a product should cost based on the cost of the input materials, the cost of production and profit margins. It assists the supply chain professionals to seek a fair and reasonable price from the suppliers and enables strategic sourcing for components and parts. A should cost analysis model helps the procurement and finance function to understand the impact of individual elements on the products pricing strategy and helps them to make well-informed decisions based on supply market intelligence. For the procurement leaders, understanding what determines the cost of a product is the pivot around which the entire procurement function revolves.

The concept of should cost analysis was the brain child of the U.S. Department of Defense who continuously strived to improve the government’s ability to monitor pricing and drive cost savings opportunities. It has become an important part of the government procurement process and has been included in the Federal Acquisition Regulation (FAR). Today, should cost analysis can be applied to a variety of industries such as manufacturing industry, automotive industry, retail and consumer packaged goods (CPG) industry. It helps the management to gain knowledge about the pricing strategies and its effect on their supply chain, helps build a strong supplier relationship management and drive profitability. However, organizations often shy away from leveraging this cost modelling technique as they find it too complex and time consuming.

What do organizations follow to determine the product cost?

Business entities have termed the new age should cost analysis as something beyond their understanding. This is because they are accustomed to traditional product costing methods such as cost structure analysis, activity based costing and strategic sourcing. There is no doubt that these are effective cost analysis methods but there’s a flip side to it. These cost methods are often one-dimensional, rigid, costly and difficult to scale across functions or cost elements, and they do not help in building a strong supplier relationship. As a result, the organizations fail to take into consideration the 360-degree view of the supply market, competitive landscape and trends in the industry.

Future trends in procurement: Should cost analysis

Businesses require tools and methodologies, like should cost analysis, that help them to ascertain the price they should actually pay, squeeze supplier margins to the bare minimum and receive the best possible quotes for sourcing materials and parts. In business, organizations don’t get what they deserve, they get what they negotiate. Similarly, the should cost analysis model will enable the organizations to negotiate well with the suppliers, thereby creating a win-win situation for the buyer as well as supplier. It will facilitate collaborative development, improve the product quality by leveraging supplier insights, mitigate potential supply chain risks and have a bigger shot at driving profitability. As against the traditional costing methods in use, should cost model will help organizations to determine the set up cost to ascertain optimum order quantitates and inventory levels.

Organizations can reap several benefits and create a competitive advantage by integrating should cost analysis in their supply chain processes. At SpendEdge, we help our clients to have a first mover advantage in their specific industry by providing actionable insights to make well informed sourcing and procurement decisions.

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Should Cost Modelling: Building Relationships and Driving Profitability

With procurement gaining prominence at the top management table, decision makers have recognized the positive impact it has on the organization’s bottom line and the value it creates for every stakeholder. Senior management are constantly looking out for tools and strategies that will not only bring down the overall costs but also improve the quality at every step in the supply chain. As a result, organizations are taking recourse to high level procurement intelligence that delivers actionable insights. Should cost model is a blessing in disguise that helps you realize cost economies, enables strategic sourcing, builds stronger supplier relationships and drives profitability. What is should cost modelling all about, you wonder?

Should Cost – A Cost Estimator in Disguise

 

If we were to explain what should cost analysis is in one word, we would call it a ‘cost estimator’. Should cost modelling is the process of ascertaining what a product should cost taking into consideration the cost of the input materials and the value addition processes along with the profit margins. It is a tool to understand the impact of each individual cost element on a product or service including materials, personnel, manufacturing, production and logistics, thereby driving decisions based on procurement intelligence. It helps in finding answers to critical decisions, for instance whether to make or buy a certain component or part. Should cost modelling changes the entire game and creates a shift in power from the supplier to the buyer  Additionally, it enables better understanding of the effects of pricing dynamics on the supply chain, facilitating a better supplier relationship management and building a strong partnership between the two parties.

Cost Planning – Now You See Me, Now You Don’t

 

While planning and identifying costs, organizations often shy away from making use of should cost tools and procurement intelligence that could help them in taking strategic decisions. Why? Because these tools and models are often looked down as complex and time consuming. But in reality, the concept of should cost is very simple: if you know what a component should cost, you would be able to determine the price you’d pay for it. Should cost model benefits in various ways namely,

  • Identifying mis-quoted components and parts with higher profit margins, thereby benefitting the procurement function to procure materials at the right price
  • Identifying the right supplier who is fit to produce a particular component and thus helping in sourcing from the right supplier
  • It aids in simplifying the requirements and creating an efficient design so as to reduce its complexity and manufacturing costs

Should cost analysis can benefit various industries and sectors, right from healthcare to retail and something as simple as tank cleaning services. It is definitely one of the best procurement practices and is much more accurate than the other cost analysis tools.

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Insights into the Should-Cost Analysis of Tank Cleaning Services

The expense involved in cleaning tanks is a rather vague area to venture into. And therefore, companies are looking for avenues through which they can gain an accurate and in-depth analysis of the market. This analysis is not only to get a clear picture on the leading suppliers, but also to figure out the most optimal resources and hidden ‘cost out’ opportunities embedded in the endeavor. One of the best ways in which this goal can be achieved is by resorting to should-cost analysis (should costing).

Role of should-cost analysis in tank cleaning services

Category managers would agree how unlike strategic sourcing, should costing begins with an internal assessment of the potential costs involved in the project. Through the process of benchmarking, value analysis, tear down, and strategic sourcing, should costing provides an optimized strategy to improve product value and boost profit margins.

Though there is a popular conception that should costing is a rather complex process, the fact remains that it is one of the best procurement practices available at present. As it takes every minute cost into picture, the cost model provided by should costing is far more accurate than other methodologies.

When it comes to tanks, the major procurement pain points which have been noticed by our procurement specialists are:

  • Gaining actionable insights into best cleaning methods
  • Assessing average cleaning cost per cubic foot of solids in the tank
  • Eliminating the chances of ambiguous billing

Thus, by taking applicable economic and physical attributes into consideration, should-cost analysis predicts the cost involved in a system or a product.

Tank cleaning services and the SpendEdge advantage

Tank cleaning services is an integral cost component for many companies. Getting a realistic picture on its potential cost to the company is one of the primary steps towards building a foolproof financial strategy. The procurement team at SpendEdge can build a comprehensive should-cost model by blending primary and secondary data, and backing it with data analysis. This model clearly chalks out the primary costs involved in the cleaning process, along with detailed assessment of region specific labor costs. The model is customized depending on the varying cost components and different locations that are taken into consideration.

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Assessment of the Supplier Landscape and Should-cost Analysis for Tank Cleaning Services

The Procurement Pain Point

To understand the supplier landscape and the prevailing market prices for tank cleaning services for above ground storage tanks (AST), a world-renowned petroleum company approached SpendEdge to engage in a supplier landscape assessment and should-cost analysis for the various types of tank cleaning services. The procurement market intelligence engagement helped the petroleum company in identifying the key suppliers for tank cleaning services across the target region and gain insights on the various procurement strategies specific to the petrochemicals industry.Contact US

The primary objective of this supplier landscape assessment was to help the petroleum company to gain actionable insights into the best methods available for cleaning different types of tanks and provide an assessment of the average cost for cleaning per cubic foot of solids in the tank. Additionally, this supplier landscape assessment and should-cost analysis would also help the petroleum company to eliminate challenges in estimating the cost of cleaning above ground storage tanks, which usually resulted in ambiguous billing.

SpendEdge’s supplier landscape assessment team followed a blended approach of combining secondary research with primary interviews and also tracked the recent procurement trends and developments in the market to meet the specific requirements of procurement heads in the petrochemicals sector. Moreover, to understand the market’s short- and long-term growth in the region under focus, our procurement market intelligence experts also carried out discussions with industry experts and key stakeholders.

Procurement Insights Offered and the Outcome

To address the specific requirements of the client, SpendEdge deployed a team of supplier landscape assessment specialists, working directly under a project manager with substantial experience in conducting similar types procurement market intelligence projects. By following a blended methodology consisting of primary and secondary data collection followed by data analysis and should cost model development, our procurement experts conducted a comprehensive cost analysis and supplier landscape assessment study, which helperequest proposald the petroleum company to gain insights into the supply landscape for tank cleaning services across the target region and their market prices.

In just five weeks, SpendEdge’s supplier landscape assessment team was able to help the petroleum company to understand the best methods available for cleaning different types of tanks and gain insights on the average cost for cleaning per cubic foot of solids in the tank. Additionally, the supplier landscape assessment solution offered by us also helped the client identify various key suppliers for tank cleaning in the target region and gain an understanding of their key offerings or capabilities, geographic coverage, and price range to make robust decisions.

Some of the additional insights offered by this supplier landscape assessment include

  • Development of a list of components of a typical molten salt tank
  • Development of a preliminary cost model
  • Supply market data collection (qualitative and quantitative)
  • Assessment for the weight of each cost component or driver
  • Assessment of the impact of labor costs (location specific)
  • Data model validation and scenario analysis to check the robustness of the developed cost model
This case study offers information on how our supplier landscape assessment helped a global petroleum refining and marketing company understand the supply landscape for tank cleaning services.

 

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