From the course: Purchasing Foundations
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Should-cost analysis
- Wouldn't it be great if the next time you bought a car, you knew exactly what it cost the company to make that car and deliver it to the dealer? Not the suggested retail price, not the invoice amount, the exact cost of the car, broken down into specific categories. It would definitely help you to negotiate the price for that car. As a buyer for your company, that's the kind of information you're looking for to determine a fair and reasonable price to pay the supplier. You can get that information in one of two ways: By receiving a cost breakdown from your supplier or by doing a should-cost analysis yourself. Here's an example of how this works. In an ideal world, your supplier will provide every detail of their costs. With this supplier cost breakdown, you can do a little research and plan your upcoming negotiation. For example, you notice that their cost for copper is about 10% more than the cost you find on the producer price index, or PPI for copper. The PPI provides buyers with…
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