Cost models can help enable better supply chain management; only if category managers don't see it as an accounting exercise

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By: Beroe Inc. --

24 September, 2014

Cost models can help enable better supply chain management; only if category managers don't see it as an accounting exercise
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Cost modelling has traditionally been seen as an accounting exercise, especially to capture the cost components or cost drivers of various inputs that go into a product. However, using cost models to merely capture the cost components is a sub-optimal usage of this concept.

Procurement community can gainfully employ cost models if they stop treating it as a mere accounting application. Cost models can be used in areas such as best cost country sourcing, sustainability, design innovations, supplier reliability and so on.

For example, procurement managers in the packaging industry face constant pressure to "down gauge" as well as to adhere to environmental legislation, while keeping a tight lid on costs and economies of scale. Cost models can help category managers by benchmarking the cost impact of using various packaging options such as glass bottles or pet bottles. With the help of the models, category managers can also figure out how to optimize costs and find a better supplier for sourcing the right package.

During the Webinar, Beroe's Cost Model analyst Aditi Dev explained how category managers across major industries can derive value by employing cost models for reasons other than the standard usage.

Dev talked about multiple case studies across industries -- actual as well as hypothetical -- so as to bring out the benefits of cost model in supply chain management.

Key Takeaways:

1. Traditional usage of cost models and estimation tools.
2. How could a cost model help in taking "make vs. buy" decision?
3. How would a cost model help in implementing a best cost country sourcing strategy?
4. How would the cost model answer whether the incumbent supplier is a good option or not?
5. How can operational efficiency be improved through cost models?
6. How can a cost model be used to formulate investment details that would be necessary for setting up a plant or a green field venture?