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.

Benefits

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

Other Details

Course Material

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.

Trainer

Frost, Procurement Adventurer

Course length

1 day intensive, 2 days advanced

Location

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.

Cost

Depending on your specific needs and on request 

Course Prospectus

Course Approach

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.

Course Level

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.

Sectors covered

The techniques covered work across direct and indirect spend. 

 

Learning Objectives

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 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

Client Feedback

"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

frost@procurementadventurer.com    +44(0)7967372378