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Four Reasons Why Buyers Should Love Should-Be Cost Models.

In a recent round table we conducted with Chief Purchasing Officers, CPO’s were lamenting about the difficulty they encounter in getting buyers to develop and use should-be cost models.  They were looking for the magic dust that would make buyers as enthusiastic about should-be models as they were.

The CPO discussion led to the development of 3 reasons why buyers should enthusiastically support adoption:

  1. They reduce workload. In most manufacturing companies, buyers spend 25-50% of their time tracking down supplier quotes to support sales efforts.  Should-be cost models can generate reliable estimates in minutes
  2. They make cost negotiations easier. Should-be cost models help buyers understand supplier manufacturing processes and cost drivers.  With this knowledge, buyers can deal more collaboratively, and achieve lower costs, with key suppliers.
  3. They help achieve lower cost designs. 70-80% of cost is locked-in once a design is completed.  Early sourcing – before designs are finalized –  opens up the opportunity for suppliers to work with engineering to develop manufacturing optimal designs.

We presented this rationale to buyers at a recent training event.  The reception was less than enthusiastic.  Then, we presented a fourth reason that generated intense reaction and discussion:

  1. They improve your career prospects. Buyers who create and use cost models develop a deep understanding of manufacturing costs.  They use this knowledge to work more collaboratively and effectively with their suppliers to reduce costs.

They communicate more effectively and confidently internally about why suppliers are chosen and the validity of their prices.  The knowledge and the skills they develop position them for better positions within purchasing but also within other functions.

In the 34 years I have been in manufacturing purchasing, I have seen buyers run from and to should-be cost models.  I have several examples of buyers who ran to the models and are now senior level executives: CEO’s, VP’s of purchasing and VP’s of other functions.  As I sit here today with my 3rd cup of coffee and think of none who ran from truly understanding costs who achieved that level of success.

So, my suggestion for CPO’s is simple.  Rapidly recognize, reward and promote buyers who run to should-be cost models.  They are the buyers who will succeed and also enable your organization to succeed.