Training - Cost Modelling
How often do you create a cost model for the raw material, packaging, product or service you’re sourcing? If the answer is ‘not often’, then the chances are you’re spending more than you should be.
Ever since 2006 when I did my first cost model for banana puree, I’ve been amazed by the incredible value a good cost model can deliver. In fact, cost modelling is quite possibly the most powerful of all procurement techniques and I use it on a regular basis. Every procurement professional should be well trained in its use.
I’ve cost modelled almost everything under the sun whether it be coconut oil, bags for pet food, forklift truck rental, financial audits and even performance cycle clothing for the SKY Racing Team!
I’m often told, “this can’t be modelled - it’s too complicated or there’s insufficient data”, or even “if I manage to create a model, the supplier won’t budge on the price.” I’ve broken many paradigms and I’ll show you how to do the same.
Routinely, I expect a cost model to unlock 5-10% savings, 10-20% is not uncommon and occasionally up to 50% is possible. Imagine that applied to £50M of your spend. But the great thing about cost modelling is that the benefits go far beyond cost savings and surprisingly suppliers can be happy with the outcome too.
Benefits to you
As well as cost savings, typical additional benefits for your business may include:
More meaningful insights that can be used to steer strategic decisions
Price forecasting with greater accuracy
Safeguarding quality, supply and sustainability by factoring in the right cost to the finished price
Ironing out peaks and troughs of market prices and sometimes being able to decouple pricing from market dynamics
Benefits to suppliers
Suppliers often tell me they like using a cost model because:
They know where they stand with their customer
It saves them considerable time
A long-term understanding is built up with their customer. (Recently, I heard from a supplier who said he was happily using the same cost model with his customer that I set up 15 years ago)
Making changes to the specification is miles easier
Attendees will receive a full training pack containing a summary of content from the day as well as copies of all case studies and group exercises.
Frost, Procurement Adventurer
1 day intensive, 2 days advanced
Typically, clients like to host the training on their own site. I get asked to train all round the World and I'll head to where you'd like to be. From time-to-time I run a course open to people from non-competing businesses in a fixed location. This course can be run virtually by video conference.
Depending on your specific needs and on request
The course is a fun and highly interactive day blending theory, many examples and two case studies. It’s usually followed up with two further sessions – one to apply the techniques to your portfolio and the second, several weeks later, to ensure the skills are embedded in your DNA and your business.
I tailor the training specifically to you and your team catering from junior procurement experts to senior sourcing managers. It's not unusual for Category Directors, Heads of Procurement and VPs to join too.
The techniques covered work across direct and indirect spend.
The overall objective is for you to become competent and confident in the design and application of cost modelling. By the end of this course you will be able to:
Pick the right cost model for your circumstances
Understand how to mesh your cost models within the wider context of your category strategy
Understand how and when to apply cost modelling
Create the architecture of your cost model
Use pictures and diagrams to piece together the jigsaw
Split up the key elements of cost
Estimate in the absence of robust data and information
Understand the impact of quantity
Benchmark using different variables
Create a range of cost models from simple cost breakdown to should-cost, complex multi-stream and menu choice versions
Assess the impact of cost drivers
Sensitivity test key cost drivers
Link your model to dynamic data
Manage your cost model with your supplier
Appreciate how best to use your cost model in negotiations
Derive value from the cost model
Configure your deal and contract based on the cost model
"Thank you Simon - he is not just a trainer, he loves cost modelling and I could see by his enthusiasm and the way my team were responding that he has raised their interest!"
Paul Gardner, VP Procurement, Mars Europe
"We dared to estimate and give it a go! By doing so we understood much better the cost contributors and knew which ones to target."
Roland Heise, Senior Category Manager, Mars Germany
"Our cost modelling put us into the driving seat with our supplier to challenge particular elements of the costs and allocation to our account. It was that good that at one point the supplier wanted to close the discussion and stop us investigating further."
Justyna Gallei, Snr Category Manager, Mars Germany
"Thanks for two great days here in the US. I thought the class and material was delivered and facilitated very well. While this is new capability for the teams, I believe you helped remove barriers to cost modelling and asked the right questions to help get everyone on the right direction."
David Gibson, Strategic Sourcing Director, Mars US