Purchasing Cost Analysis

As a result of this training, attendees will have a heightened professional level of evaluating supplier financial status and conducting cost analysis. They will learn how to use lessons taught in their day to day activities as a prerequisite to effective negotiating maximize lowest value added price. Participants will do cost analysis using real life case studies that emphasize the key elements of analyzing proposals.

Day 1
a) Total Cost of Ownership (TCO)
Purpose: To familiarize the student with the various types of costs related to the purchasing
function and to experience financial analysis with in-class simulations.
Topics:
Definition of Cost Analysis
Purchase Price: But One Component of Cost
The Importance of Total Cost of Ownership in SCM
Three Components of Total Cost
TCO, Net Present Value Analysis (NPV), Estimated Costs
Supply Management Action
b) Pricing
Purpose: To help the student better understand the law of supply and demand and the impact
on pricing considerations.
Topics:
General Economic Considerations
Price Analysis
Purchasing Design Work
Documenting a Price Analysis
Discounts
2
c) Cost Analysis
Purpose: To introduce and give an overall understanding of financial tools used to calculate
and manage cost.
Topics:
Cost Analysis
Sources of Cost Data
Direct Costs
Learning Curves
Application of Learning Curves
Tooling Costs
Indirect Costs
Activity-Based Costing
Target Costing
Profit
Day 2
d) Cost Measurements
Purpose: To introduce and give an overall understanding of financial tools used to measure
and report cost.
Topics:
Standard Cost
Purchase Price Variance (PPV)
Cost Savings
Cost Avoidance
Cost Containment
e) Financial Measurement Formulas
Purpose: To present various ways to measure the financial status of a supplier.
Topics:
Return on Assets Employed
Return on Total Assets
Net Operation Margins
Current Ratio
Quick or Acid Test Ratio
Gross Margin
Rate of Return of Sales
Rate of Return Net Worth
Earnings per Share
Debt to Equity
Debt to Net Full Assets
Assets Turn Over
Inventory Turn Over
f) Cost definitions
Purpose: To introduce and gain a better understanding of financial costs and how they
are used.
Topics:
Total cost
Standard costs
Purchase price variance (PPV)
3
Direct costs
Indirect costs
Fixed costs
Variable costs
Semi-variable costs
Relevant vs. Irrelevant costs
Life cycle costs
Opportunity cost
Activity based costing