Strategic Procurement Consultant | Key Skills: Stake Holder Management, Cost-Reduction Strategies, Implementing Change, Supplier Relationship Management, Purchasing Training...My views are my own.
CFO's - How many of your employees ask suppliers for a complete breakdown of costs? Here's why I ALWAYS ask: 1. It helps understand where the money is going and identifies areas where cost reductions might be possible. 2. Identifies cost-saving opportunities. You can negotiate with suppliers, explore alternative materials or suppliers for specific components, or find more efficient manufacturing processes. 3. Providing competitive pricing for each component, helps in supplier selection and performance assessment. 4. It allows for a thorough Total Cost of Ownership analysis, ie not only the initial purchase price but also ongoing operational costs, maintenance expenses, and other costs associated with the product over its lifecycle. 5. It's crucial for budgeting. Helps in setting accurate budgets, forecasting expenditures, and avoiding unexpected financial surprises. If you need help understanding how this works for your business, drop me a DM. #procurement #costs #cfo
Lubos L.
10mo
Maybe let’s turn that question into - how many buyers actually understand the costs of the products and services they’re buying? The thing with cost break-downs is that if the supplier is not willing to provide, you can always try to set up your version of it and base your commercial discussions around it. If your assumptions are completely off, the supplier will come back to you and provide you with something that’s closer to their reality. I don’t believe the purpose is to be 100% accurate - it’s to open a discussion with your supplier to better understand their cost base and overhead structure. I agree that this is variable for different categories, but with the advent of GenAI + loads of information being available anyways, it’s not that hard to get a rough estimation rather quickly. Then also, there are companies who specialize in providing external market intelligence and understanding cost structures is one of the outputs you typically get.
Dieter van de Scheur
10mo
There are distinct downsides to doing this and in my experience, people are generally not aware of the pitfalls. When you ask a supplier to give a breakdown, they have no incentive to report truthfully to you and you give them a great opportunity to anchor you, which might actually make future negotiations more difficult. Getting a cost breakdown is not bad in essence, but you need to be aware of the pitfalls: https://www.linkedin.com/pulse/problems-pitfalls-open-books-contracts-dieter-van-de-scheur
This, can't agree more Steve! I'm in the habit of asking suppliers for a line by line item breakdown in their quotation. This helps C&P to achieve the above you listed. It also helps bring out any hidden charges I always want to see where I can achieve cost savings as per line items and where I can possibly ask for discounts. I have seen this work times without number. I always end up with smiles ☺ when I achieve cost savings. I would choose line item cost breakdown over lumpsum any day!
Marcelo Figueroa
10mo
Almost nothing in procurement is written in stone, a true procurement professional knows that the topic of cost breakdown is helpful as far as the items that are somehow "open to market" like raw materials and sometimes labor or quality. Those you can influence, others like SG&A and profit you just don't touch, you might not like but it's up to the supplier to determine.
Alex Dussurgey
10mo
I found cost breakdown exercises really powerful from the buyer side. Perceived as a threat on the supplier side... You can't apply to all categories and industry though.
Hrishikesh Kulkarni
10mo
Always ... to which many of the suppliers oppose or hesitate to confirm
Job Beltran
10mo
The challenge is when this Burger is customized.
Amadeu Kambinda
10mo
Indeed as we have Suppliers that do Over charge and for US to have Control and know what is being pay for as if this is not done we are to end up Over playing and supplier that can not provide a brake down costs they are not transparent
Key Account Manager / BDM
10moThis is why the best buyers are the ones who have worked on both sides of the table. Asking a supplier to break down their pricing structure, dose not mean you will get to see their profit margins. All Suppliers will inflate values to show a lower % margin, if asked to to this. An experience buyer will have an understanding of the true costs and should be able to work out the savings, with out asking the supplier. Also, asking an external supplier to give you a full break down of the costs is not the best way to build trust and lasting business relationships. You either implying they ripping you off or they don't know how to do their job.