What is a should cost analysis?

A Should Cost analysis is a calculation conducted by procurement professionals to ascertain the expected price of a good or service during the process of strategic sourcing. This process often involves reverse engineering the item being sourced to determine what are the costs of the various parts that constitute it, identifying the kind of labour costs that would be involved in aseembling the item, and adding overheads and expected profit margins. This would provide the procurement team with an idea of what the good or service should cost, and using this estimate, would be able to strategically source the best suppliers for the job.