Cost Management

Once the contract is signed, purchasing’s job is not over. In fact, it is just beginning. One of the most important roles from here on in is cost management, which is understanding the true underlying cost of what is purchased. This involves a process of unbundling the price paid and other components of price over the life cycle of a product or service, to deliver a target cost and a unit rate to determine if it is priced competitively in the marketplace. Cost management may involve different decision-support tools and databases to create insights into:

• The cost of supporting a process or commodity

• The gap between cost drivers and the assumed business case

• Identifying the business case (e.g., is it a reasonable expense after we deliver it to the customer?)

• The total cost of offering a service, including all of the elements of receiving, use, and disposal over the life cycle of the offering.