Should-Cost Analysis

Understanding the drivers of raw materials and manufacturing costs is imperative to unlocking cost savings opportunities. Limited visibility into these cost drivers — and the overall production process — often results in incorrect component pricing, weakening your bargaining position with suppliers and making it all the more difficult to find avenues to cut costs.

Should-cost analysis is a powerful cost estimation tool that equips and empowers your procurement team to furnish viable evidence to suppliers as part of negotiation efforts, helping you achieve a final cost estimate that is closer to your target price.

At GEP, unmatched industry and category expertise and powerful, effective technology converge to provide clients with highly insightful should-cost analysis (also known as cleansheet analysis or cost breakdown analysis) services. Our cost engineers assist market-leading enterprises in identifying precise alterations to procurement cost structures and schematic product designs, capable of generating big money savings through optimal product pricing.

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GEP’s Four-Step Approach to Should-Cost Analysis

Should-cost analysis is the process of building and understanding the elements that make up the cost of a product or service. It’s also commonly known as cost breakdown analysis, cleansheet costing, open book costing, should costing, teardown analysis, price breakdown analysis, or supplier cost analysis.

The following steps briefly outline our approach to should-cost analysis / cost breakdown analysis:

  • Data Collection

  • Systematic Expansion

  • Determining Cost Drivers

  • Developing Cost Insights

Data Collection

Our cost cleansheet consultants start with identifying product or service data for analysis by obtaining information from sources such as Enterprise Resource Platform (ERP), Bill of Materials (BOM), spend/purchasing data, and invoices.

Systematic Expansion

The crucial next step in the process is to expand upon all components of the following six key cost drivers, namely: materials, labor, conversion costs, overheads, logistics, and profit.

Determining Cost Drivers

Once all relevant product/service data has been captured and their key components expanded, we scour various internal and external sources — including MRP/ERP/PLM systems, item masters, BOMs, primary and secondary research, open data sources, third-party databases, professional associations, etc. — to determine the underlying cost drivers.

Developing Cost Insights

By analyzing the information obtained from the mentioned sources using our own proprietary tools and models, we develop crucial cost insights that help improve business value for our clients.

Closing the “Should-Cost” to “Will-Cost” Gap

Learn how a $10 billion-plus Fortune 500 FMCG company realized 12 percent savings with GEP’s cost cleansheet model

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GEP’s talent-rich team of should-cost analysts and consultants help manufacturing teams reverse engineer product costing to accurately estimate the cost of component parts — or in other words, what the said parts ideally “should cost.”

Having a fair idea of what your raw material should cost — and then comparing it to what it “does cost,” or the price quoted by the supplier/distributer — places you in a stronger negotiation position while arriving at what these parts eventually “will cost.”

Give your price negotiation initiatives a shot in the arm to forge better, more effective supplier alliances and boost overall market competitiveness — contact GEP today.

Should-Cost Analysis in SMART by GEP

SMART by GEP procurement software features advanced should-cost analysis and forecasting capabilities as part of a comprehensive cost management solution for direct and indirect categories.

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