Original Source:  Strategy + Business

“At the heart of best practice in purchasing is a set of skills. One of the most important is the one that enables managers to understand what determines cost. 

In a recent survey of leading purchasing organizations sponsored by Strategy & Business, cost modeling was ranked among a list of 17 purchasing skills as one of the most critical. More significantly, the difference between the importance ranking and the self-assessed level of skill — the development gap — was among the largest as well. (See Exhibit I.)

Our experience is that this development gap is even greater in the typical purchasing organization — and the skill is just as critical.

 

In fact, cost modeling is critical even if a company has yet to find the balance between cooperation and competition. When applying a “Darwinian Rivalry” model (see Exhibit II adapted from “Balanced Purchasing,” Strategy & Business, Winter 1996, Issue 2), a company negotiates ruthlessly with suppliers. Cost models can provide the understanding needed to squeeze supplier margins to the bare minimum. As Chester Karrass, one of the leading negotiation trainers in the field of purchasing strategies, puts it in his advertising: “In business, you don’t get what you deserve, you get what you negotiate…”

https://www.strategy-business.com/article/9625?gko=ba075

Contributors: Open Source
Categories: Industry Articles, SIG U Resource
SRC Type: Sourcing, Strategy