Procurements Main Key Cost Drivers


The role of the cost either for a product or service is set or happens during the negotiation part. The negotiation procedure can be improved if one can achieve the understanding of driving cost. What drives the cost? Usually, there are 2 main factors.

Product Cost Drivers –For instance; if physical product is the main focus, thenfactors to consider that drives the cost are as follows.

  • Materials Used –The used material is all about what type of materials and how much quantity of material is used. The cost is going to be on the higher side if the focus is more on the quality and vice versa.
  • Components of Product – The product component is all about the type of material, design and packaging used. The cost can come down if and only if the material can be either changed or by simply choosing another supplier.
  • Labor Cost During Production – The labor cost is different depending on the manufacturing methods and efficiency rate.

Service Cost Drivers –When it comes to service cost, it is considered to be a little different and complicated when it comes to labor cost. It is imperative to understand the supplier’s process in order to understand the service cost.

  • Map the Supplier Process –Before you start to understand the supplier process, it would be easier to sit and talk with a supplier about the process of supplying.
  • Allocating Cost for Every Activity –You must first get information from the job boards for the labor prices that will allow you to understand on the cost allocated for all the activities.

Doing a strong procurement course will help you to understand more regarding such topics.

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