The Metamorphosis of Cost Modeling as a Supply Chain Tool

Cost Modeling has evolved from a negotiation tool to a development tool which captures the impact of process, design and volume on the total cost incurred by the company in manufacturing a product or providing a service. This has also led many industries to depend upon cost models to determine whether the products or services are priced appropriately and the points of negotiations with suppliers like bargaining and cost-drivers are identified. This essentially relates cost-modeling to purchasing skills and procurement which further changes it as a supply chain tool. Introduction Cost Model can be defined as an effective tool and a set of mathematical algorithms which can change resource data into cost data. It is used to estimate the impact of various cost components involved in the manufacturing process and it typically includes raw material cost, utility cost, labor cost and indirect costs (depreciation, selling and administrative expenses) to arrive at the total cost of production.   Author: Aditi Dev