How do you explain the strategic focus of cost management?

Strategic cost management is not about cost cutting — it is about achieving a sustainable cost advantage while improving or maintaining good quality, supplier relationships, and long-term supply chain stability.

Strategic Focus of Cost management


A New Approach to Supplier Negotiations

AIMDRIVE-AI Solution:

An advanced form of negotiation that looks beyond just the lowest price and more towards thinking about business solutions using price analysis and cost analysis — understanding the supply market, the cost structure of the product/service and the importance of Supplier Relationship Management — with the goal of attaining reasonable pricing.


1. Agreeing on the need to manage Costs

  • Understanding Goals
  • Obtain history of prices paid and volume purchased
  • Basic Supply Market Analysis

2. Identifying Costs

  • Price Analysis (Competitive Advantage Measurement System — CAMS™)
  • Analyze Cost Breakdowns
  • Develop Process Map, Industry Cost Profile (ICP)
  • Build Basic Cost Model
  • Should Cost Model (Product/Service)
  • Price Discipline™ Model
  • Total Cost of Ownership (TCO) Model

3. Measure for each critical Cost

  • Define Cost Drivers by formula-based Costing
  • Quantify Cost Drivers

4. Define

  • Defining the Key Cost Drivers
  • Develop Strategic Options for the Key Cost Drivers

5. Reduce

  • Adapt generic or create custom Strategy Statement · Detailed Supply Market Analysis
  • Detailed Should Cost Model (Product/Service) or Price Discipline™ Model or Total Cost of Ownership (TCO) Model
  • Identify net potential value

6. Implement

  • Adapt generic action plan associated with Strategy Statement or create custom action plan

7. Verify

  • Develop Negotiation Strategies
  • Brief the buyer and prepare the buyer for the negotiation strategy
  • Record progress of implementation of all action items

8. Eternal

  • Capture lessons learnt and prepare for next negotiation
  • Record the status of value realized against overall Strategy Statement


Step 1: Price + Cost Analysis


1. Enhanced Decision-Making

  • With AIMDRIVE-AI, by leveraging real-time market data, Bill of Materials (BOM) analysis, and detailed cost breakdowns, a company can accurately benchmark their costs against industry standards.
  • AIMDRIVE-AI helps teams break down costs and understand where the money is going for each part of the product or service through AI developed ICPs (Industry Cost Profiles).

2. Improved Negotiation Strategies

  • AIMDRIVE-AI uses cost models, like the Should-Cost Model, to help teams figure out what the product should really cost and compare that with what’s being charged. It also uses industry data to check if the price is fair.
  • These insights, coupled with adaptable units of measure and historical data trends, allow procurement teams to approach negotiations with a strong, data-backed position, ensuring suppliers align with market expectations and help secure more favorable terms.

3. Market Competitiveness

  • AIMDRIVE-AI helps find the important elements that make up the cost by looking at past prices and how much was bought, so teams can focus on the right areas to save money. In today’s fast-paced business environment, staying ahead of market trends is crucial for maintaining competitiveness. AIMDRIVE-AI tracks key cost drivers that allow organizations to anticipate market shifts.
  • This proactive approach helps businesses benchmark supplier pricing, monitor market trends, and secure advantageous contracts that ensure alignment with current industry standards, keeping them ahead of their competitors.

4. Supplier Collaboration and Cost Reduction

  • A successful approach to cost management requires a close partnership with suppliers. AIMDRIVE-AI supports collaboration by identifying critical costs and offering detailed cost breakdowns.
  • This level of transparency fosters joint initiatives that not only refine processes but also reduce waste and inefficiencies. By working together with suppliers, organizations can co-develop innovative solutions that drive mutual efficiency and cost savings.

5. Efficiency Gains

  • One of the key advantages of AIMDRIVE-AI is the significant efficiency gains it provides. By automating data analysis and standardizing cost evaluation processes, the tool reduces manual workload and accelerates decision-making.





Comments

Post a Comment

Popular posts from this blog

Analyze a Price Increase Request

How to analyze whether a Supplier’s Price Increase Request is reasonable? Solution:  This can be determined with  AI MDRIVE- AI   Price Analysis and can be complemented using  AI MDRIVE- AI   Cost Analysis. Visit https://aimdrive.com/   to perform  AI MDRIVE- AI   Price Analysis and   AI MDRIVE- AI   Cost Analysis Example : Consider a product you have been regularly buying over the past year from a supplier at a price of $10.00 per unit. The supplier now informs you that they need to raise their price to $11.00 in view of increasing costs, i.e. a Price Increase Request of 10%. AI MDRIVE- AI  Price  Analysis : Identify the industry of your supplier and obtain the Market Average Price Movement of products sold by this industry. You find that the market average price movement over the past year was -1%. Use this benchmark to challenge the supplier’s Price Increase Request of 10%. However, the Supplier cites an increase of 20% in...
Read more

Why is AI important in a supply chain?

Image
Artificial intelligence (AI) in supply chain management refers to the use of machine learning, data analytics, and automation to optimize various supply chain processes. For example AI helps reduce costs in supply chain by: • Cost Analysis & Optimization — Identifying cost drivers and providing real-time insights into cost breakdowns, driving data driven decision making. • Price Forecasting — Predicting future price trends based on historical data. • Supplier Benchmarking — Comparing supplier costs to ensure fair pricing. Tools like AIMDRIVE-AI simplify AI-driven cost analysis and procurement by automating cost breakdowns, tracking price trends, and providing actionable insights, helping businesses optimize their sourcing strategies and improve cost. 
Read more

How can I reduce supply chain costs through better supplier management?

Image
Better supplier management is key to reducing supply chain costs. Here are some strategies: • Supplier Benchmarking : Compare supplier costs and performance to ensure you’re working with cost-effective and reliable partners.  • Collaborative Cost Management : Work closely with suppliers to identify cost-saving opportunities, such as process improvements or bulk purchasing.  • Negotiate Better Terms : Use data from price and cost analysis tools to negotiate better pricing, payment terms, and delivery schedules.  • Monitor Supplier Performance: Regularly evaluate supplier performance to ensure they meet quality, cost, and delivery standards. By leveraging AI-powered tools like AIMDRIVE-AI ( https://aimdrive.com/ ), businesses can perform price and cost analysis and engage in collaborative cost management with suppliers.   
Read more