What is "should-cost analysis"?



Should-cost analysis is a method used to estimate the fair price of a product or service based on:

• Material Costs – Raw materials required for a product

• Labor Costs – Wages for workers involved in product manufacturing or service delivery

• Overhead Costs – Expenses like equipment, electricity, rent, etc. and other corporate expenses

• Profit Margins – A reasonable profit for the supplier

Should-cost analysis plays a key role in supply chain cost management by enabling detailed cost analysis, cost reduction, and cost optimization.

Tools like AIMDRIVE-AI (https://aimdrive.com/)  simplify the Should-cost analysis process by automating the estimation of cost breakdowns, helping businesses make informed sourcing and negotiation decisions.


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