Costing has long been a painful exchange between vendors and retailers. There has been limited transparency in the process, and most interactions are analog. Even when digital systems are purchased, companies suffer because of inadequate coverage of key features required for successful cost management.
Here are the feature sets to look for in next-generation costing products for your sourcing and supply chain functions:
- Your vendors have a seat at the digital table to collaborate on costing in real-time.
Too often, delays in receiving costing data from vendors have repercussions on speed along the rest of the supply chain. You are behind, even before the purchase order is placed! Costing must be an interactive and collaborative process and must be real-time. Look for systems that allow for easy entry of product requirements on your end and systems that enable real-time submissions of costs from vendors.
- The product has a natively built mobile interface for costing.
Users at your vendors’ offices may not always be sitting in front of their laptops. Allowing for quick entry, approvals, and rejections of data through the mobile interface saves angst and time and greatly improves supplier relations.
- Allows bid management.
To maximize margins and markups, buyers and brands choose the vendor with the best cost. Buyers typically default to the same supplier for a said product in the analog world. While changing suppliers can often take away from efficiency, opening the bidding process to top-rated vendors for the corresponding product category can add healthy competition and maximize profits. Engineering an intuitive digital bid management system is not easy – that is why when you find a system that does it right, you have your winner.
- Designs purchase order (PO)-assignments based on parameters beyond cost.
While this post is about costing, it would be unfinished without mentioning the need to pick a system that empowers you with automated intelligence to optimize for parameters beyond cost. Richer bid management systems use simple algorithms that take in historical vendor performance averages plus real-time vendor submissions of projected delivery time, compliance, status, etc., along with the cost to vote for the recommended vendor per order. In other words, the assignment algorithm should recommend the best vendor based on higher weights assigned to cost, but also with relative values assigned to other attributes that matter.
- Links data across the value chain.
Costing should not be run as a siloed function nor run as a siloed digital product. When data from other systems across the supply chain is linked, there is a proportional improvement in all aspects related to cost management. For example, linking materials management, inventory availability of individual raw materials, product design and bill of materials, supplier performance data, and more can add much quality and rigor to the costing table at both the granular and aggregated levels. This data link can also help supercharge the quality of insights from analytics reports – who were the most profitable suppliers? Were these suppliers the most competitive or were they given simpler versions of the product designs? How quick were suppliers to respond to bids? Were the most cost-competitive suppliers also the fastest to deliver to the DC?
- Builds in trade, tariff, and political weights to change guidance.
The biggest impacts to costing stem from changes in trade, tariffs, and macroeconomic uncertainties like COVID. Smart costing systems aggregate anonymized data across customers to guide how your variances in costing compare against similar customers and variances in the global market. Proactive alerts on negative movements in supply chains and costing can help better plan inventory levels and better manage customer expectations.
The future of costing systems for supply chains is here. Are you caught up?