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 5-20% savings and 30-40% is not uncommon. Imagine that applied to £40 million 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 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 met a supplier who said he was happily using the same model with his customer that I set up 15 years ago
Making changes to the specification is miles easier
"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."
Senior Category Manager, Germany
Thank you to Simon. He is not just a trainer, he LOVES this stuff and I could see by his enthusiasm and the way my team were responding that he has raised their interest! Vice President Procurement, UK
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 digging further. He preferred to give us the 5% than us asking more potentially uncomfortable questions.
Category Manager, Holland
*Given the powerful nature of this course I find clients prefer to give anonymous feedback and so I must respect their desire for confidentiality
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 usual for Category Directors and Heads of Procurement to join too.
The techniques covered work across direct and indirect spend. I tailor the course material and case studies specifically to your portfolio
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:
Create the architecture of your cost model
Using pictures and diagrams to 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 an optimised ‘Harlequin’ model
Cost model when their are multiple value streams
Assess the impact of cost drivers
Create a model with menu choices
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
Attendees will receive a full training pack containing a summary of content from the day as well as copes of all case studies and group exercises
Frost, Procurement Adventurer :)
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 people from non-competing businesses in a fixed location
The cost will vary depending on a number of factors such as the number of delegates, the number and complexity of categories to address and the follow up involvement you would like. I will quote against your specific requirements.