LONDON--(BUSINESS WIRE)--Should cost analysis, developed by the United States Department of Defense (DoD), is one of the most dominant methods used by many leading sourcing companies. A recent study from procurement market intelligence firm SpendEdge titled ‘Assessment of the Supplier Landscape and Should-cost Analysis for Tank Cleaning Services,’ indicates that in today’s buyer-driven market, reducing product cost and quick time to market remains a top priority for every supplier and OEMs.
Why should cost analysis?
Should cost analysis is the process of determining the cost of a product based on materials, labor, overhead, and profit margin. It is crucial for tank managers to know the cost of cleaning tanks as most of the time, suppliers are not well informed about the amount of work required before the cleaning process takes place, thus leading to ambiguous billing. But with the should cost model in place, engineering and procurement can work hand in hand to gain insights on prevailing market prices and the competitive supplier landscape.
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Shift from strategic sourcing to should costing
Until now, strategic sourcing has been the dominant tried and tested methodology in procurement for helping supply chain professionals to identify the best suppliers based on their capabilities, size, and geography. However, procurement intelligence experts at SpendEdge believe that over the next couple of years, OEMs are soon to follow the should cost modeling for their procurement process.
The strategic sourcing concept, where supply chain gains insight to leverage spend by associating quotes from several potential suppliers, has worked well over the years. This method helps organizations who have a lack of effective resources for analyzing the product cost. However, this approach does not emphasize on critical intangibles like quality performance, responsiveness, on-time delivery, and engineering contributions.
Should-cost analysis, on the other hand, provides a better insight into the cost of the product based on its drivers and provides valuable cost information, allowing the sourcing team to have a better control while negotiating with their suppliers. Should cost analysis is considered to be one of the most effective tools for electronic contract manufacturing. It allows supply chain managers to choose a supplier based on value and not price because they already know the product should cost.
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