CBD, COST IMPROVEMENTS AND CONTROL

Cost Breakdowns, Cost Improvements and Control.

Let’s explore the following reasons to implement and work on CBDs as a basis for prices.

The first reason is price transparency. An understanding of the main driving forces behind costs (like raw material, production and overhead), as well as the different processes and being able to discuss the prices during sourcing and negotiations is very important.

Second, clear costs are impacted if the parameters of cost drivers change over time. If price update according those parameters is included as a condition in the agreement, non-added-value discussions are avoided using fair standards for updating prices and therefore: WIN-WIN.

Third, CBDs are also important as a source of process information in terms of Risk Management, allowing us to react quickly if production transfer to another supplier is needed due to force majeure destruction of the supplier (any type of natural disaster) or bankruptcy by the current supplier.

Forth, it is the perfect basis to implement cost improvements projects. Analyzing the CBDs to define the main cost forces in combination later with Value Stream Mapping (for example) through the process are very powerful tools to optimize the processes of suppliers and prices.

Fifth, this transparency is also very valuable information for our I+D colleagues, allowing for optimization of cost by new designs and defining proper and realistic targets.