DISCIPLINE, TRANSPARENCY AND PRICES
Discipline as the key factor to bring transparency in prices.
Once you’ve decided to use Cost Breakdowns in your prices and agreements with suppliers, the key factor to success on the implementation is discipline, including the acceptance of the following consequences.
1) It will take time and resources from your side to define, clarify, discuss and implement the CBD as a basis for the prices from your suppliers.
2) You will face resistance from most of the suppliers to implement them. Even if your goal is a WIN-WIN situation having a proper understanding of the cost and define a fair basis for the prices you should consider that discussions and complaints will appear.
3) You will encounter cases where some suppliers would refuse to implement them in the end. And you have to accept that they have the right to refuse them, but you as the purchaser have the right not to buy more from them (if other alternatives are available) and phase them out from the portfolio. You need to be ready to accept those consequences.
4) You will need discipline to improve and maintain the CBD’s continuously after the implementation.
5) Sometimes the CBD’s would mean a cost increase by subcomponents, raw material, labor, energy, and you need to be consequential about accepting this impact of the prices if the agreement was defined as such.
These are 5 big consequences to be managed during the implementation of CBD’s and regardless, I still believe that it is a must to have CBD’s as basis for prices.
The advantages in my next post…
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