Obtain Separate Cost Figures

It is more difficult to reduce the cost of products or services when all you know is the total price of the product or the services offered. Suppliers realize this and consequently tend to bury the detailed cost in a total charge. Some details are sometimes provided by giving prices for optional components of the work.

It is much better when you can get suppliers to give information about their cost of raw material, labor charges, and the prices that apply to supplies used.

An item that requires a production run may involve a setup expense. The expense for the labor involved in the setup is valuable information that allows the buyer to calculate the cost for various quantities because the setup cost is spread over the total quantity. In other words, larger quantities cost less per piece than smaller quantities.

The supplier’s labor cost per hour helps the buyer decide on what work is worth the expense and helps compare one supplier’s charges with other supplier’s. The labor cost per hour and the number of hours may vary on the type of work required as well as the equipment used.

The cost of material can be obtained from the supplier or from suppliers of the material.

The cost of packaging should be obtained to consider other designs or methods for shipment.

Separate cost figures should be obtained for any subcontracted work if the primary supplier uses any subcontractors.

The cost of any transportation by the supplier should be itemized and compared with alternative methods.

Taxes are not always appropriate and the amount and type should be given by the supplier if charged.

The buyer uses the detailed cost figures to consider alternative product designs, and to evaluate the justification for any price changes. Each cost item can be discussed and negotiated.

Some suppliers are reluctant to provide cost information. They may be more cooperative if they see the buyer requires certain information before an order will be placed.v