Understanding should-cost analysis in practice: Principles and successful implementation

Should-cost analysis is an effective tool in strategic purchasing and cost management. The aim is to determine the realistic target costs ("should costs") of a product or service on the basis of technical and economic parameters - regardless of the supplier's current offer price.

What is behind the should-cost analysis principle?

The principle is based on the detailed calculation of all cost components of a product - from raw materials and manufacturing processes to logistics and overheads. An interdisciplinary approach is usually chosen: Technicians, purchasers and controllers work together to create a transparent cost model.

The analysis shows how much a product or service should cost, not what it costs. This creates an objective basis for negotiation and helps companies to identify excessive prices and reduce them in a targeted manner.

Steps to successful implementation

A practical should-cost analysis is typically divided into the following phases:

1.product analysis: identification of relevant components and manufacturing processes.

2.data research: determination of market prices, wages, machine costs, etc.

3.cost modeling: development of a detailed costing scheme.

4.determination of target costs: derivation of realistic target costs.

5.negotiation strategy: use the results to approach suppliers.

A decisive success factor is the quality of the database. Without precise market and production data, the analysis quickly becomes an estimate instead of a reliable calculation.

Advantages for purchasing and the company

The should-cost analysis principle offers a variety of advantages:

Strengthening cost awareness: supplier prices are objectively scrutinized.

Negotiations are well-founded: Arguments are based on comprehensible models.

Promoting innovation: Efficiency potential in the supply chain becomes visible.

Improve partnerships: Conversations are objective rather than confrontational.

Conclusion

Should-cost analysis is more than just a price comparison: it is a strategic tool for active cost management. Companies that apply the principle professionally not only gain a competitive edge - they also strengthen their relationship with their suppliers through transparency and fairness.

‍