Obtain a Supplier’s Cost Assumptions

How to get a supplier to share a cost breakdown of their price?

Solution: This can be assessed with AIMDRIVE-AI Cost Analysis.

Visit https://aimdrive.com/ to perform AIMDRIVE-AI Price Analysis and AIMDRIVE-AI Cost Analysis

Suppliers usually do not share their cost as they deem it to be confidential. This is a very common roadblock faced by Buyers and can be addressed with AIMDRIVE-AI Cost Analysis. 

AIMDRIVE-AI Cost Analysis

1. Ask the supplier to provide a breakdown of their price into the following five elements, clarifying that the purpose is to embark on a cost management journey and that this information will be treated as highly confidential.
   
   

   Also ask them to clarify what should and should not go into each “bucket”: 

   • Direct Materials
   • Direct Labor
   • Manufacturing Overhead
   • GSA and Other Expenses
   • Profit Before Tax
     
     

Note: If the supplier refuses as it is deemed too confidential, what we need to do is use our own should cost model – putting in the numbers for them.

AIMDRIVE-AI Cost Analysis: Should Cost Model

1. Refer to Analyze a Price Quote, for the steps to develop a Should Cost estimate.
   
   
2. If the Should Cost estimate is lower than the supplier’s price, we present it to the supplier and ask them to tell us if we are wrong but let them also know that if they do not provide that clarity, we would assume that our numbers are correct until they tell us otherwise. For now, this is where we think the cost should be and, the price we should be paying is less than what the supplier is asking for.
   
   
3. If the Should Cost estimate is higher than the supplier’s price, we instead break down the supplier’s price using the industry cost profile and present it to the supplier for validation. This usually forces the supplier to reveal some cost assumptions, which we can in turn use to improve our Should Cost model.