Duration 2 Days – 14 hrs.

 

Overview

This two-day course provides participants with practical methods for evaluating supplier prices, analyzing cost structures, and calculating the Total Cost of Ownership (TCO) of products and services. It moves procurement decisions beyond the quoted purchase price by considering acquisition, implementation, operation, maintenance, quality, risk, and end-of-life costs.

Through discussions, exercises, and case studies, participants will learn how to compare supplier proposals objectively, identify cost drivers, develop cost models, assess value-for-money, and support sourcing and negotiation decisions using reliable financial analysis.

 

Objectives

• Distinguish between price, cost, value, and Total Cost of Ownership.
• Identify the major cost drivers of purchased goods and services.
• Apply price analysis and cost analysis techniques appropriately.
• Evaluate supplier quotations using consistent and objective criteria.
• Develop basic cost breakdown and should-cost models.
• Calculate TCO across the complete asset or contract life cycle.
• Consider quality, delivery, operational, financial, and supplier risks.
• Compare sourcing alternatives using financial and non-financial factors.
• Use cost-analysis findings to prepare for supplier negotiations.
• Present clear, evidence-based procurement recommendations.

 

Target Audience 

• Procurement and purchasing professionals
• Strategic sourcing specialists
• Supply chain and logistics personnel
• Category and commodity managers
• Contract and vendor management personnel
• Cost estimators and pricing analysts
• Finance and budget personnel
• Project managers and project controls staff
• Operations, engineering, and maintenance personnel
• Employees involved in supplier selection, bid evaluation, or negotiation

 

Prerequisites 

• Basic knowledge of procurement or purchasing processes
• Familiarity with supplier quotations and commercial proposals
• Basic spreadsheet and numerical skills
• Experience participating in sourcing, budgeting, or supplier evaluation activities
• Participants may bring sample quotations or cost scenarios for workshop exercises, subject to company confidentiality requirements.

 

Course Outline

 

Day 1: Price and Cost Evaluation

Module 1: Fundamentals of Price, Cost, and Value 

• Definitions of price, cost, value, and affordability
• Purchase price versus life-cycle cost
• Direct, indirect, fixed, variable, and semi-variable costs
• Controllable and uncontrollable costs
• Cost, quality, service, delivery, and risk trade-offs
• Role of cost evaluation in procurement and strategic sourcing

 Module 2: Understanding Supplier Cost Structures 

• Materials, labor, equipment, and overhead costs
• Administrative expenses and profit margins
• Logistics, taxes, duties, and other commercial charges
• Supplier capacity, productivity, and economies of scale
• Internal and external cost drivers
• Market factors affecting supplier pricing
• Identifying reasonable and questionable cost elements

 Module 3: Price Analysis Techniques 

• When to use price analysis
• Historical price comparison
• Competitive bid comparison
• Market and published-price comparison
• Benchmarking and index-based analysis
• Price normalization for different commercial terms
• Volume discounts and price-break analysis
• Adjusting prices for inflation and market movements
• Identifying unusually high or low bids

 Module 4: Cost Analysis and Cost Breakdown 

• Difference between price analysis and cost analysis
• Reviewing supplier cost breakdowns
• Cost-element analysis
• Cost estimating relationships
• Should-cost and could-cost concepts
• Supplier margin and markup analysis
• Cost transparency and open-book costing
• Common limitations of cost data
• Protecting confidential supplier information

 Module 5: Supplier Quotation Evaluation 

• Developing an evaluation framework
• Checking quotation completeness and compliance
• Comparing commercial terms and assumptions
• Normalizing bids for an equitable comparison
• Evaluating payment terms, warranties, and service levels
• Weighted evaluation criteria
• Financial and non-financial considerations
• Documenting evaluation findings

      Day 1 Workshop

Participants evaluate sample supplier quotations, normalize the offers, identify key cost drivers, and prepare an initial supplier comparison.

 

 Day 2: Total Cost of Ownership and Decision-Making

Module 6: Total Cost of Ownership Fundamentals 

• Definition and purpose of TCO
• Purchase price versus total ownership cost
• Benefits and limitations of TCO
• TCO applications for goods, services, equipment, technology, and outsourcing
• TCO as a sourcing and supplier-management tool
• Determining the appropriate analysis period

 Module 7: Building a TCO Model 

• Defining the scope and assumptions
• Identifying relevant cost categories
• Data sources and data-quality requirements
• Developing the cost model
• Avoiding double-counting and omitted costs
• Assigning cost ownership and responsibilities
• Documenting assumptions and calculation methods

 Module 8: TCO Cost Categories 

• Purchase and acquisition costs
• Freight, insurance, taxes, and duties
• Installation, implementation, and integration
• Training and change-management costs
• Operating and consumption costs
• Maintenance, repair, and support
• Downtime and productivity losses
• Quality failures, inspection, rework, and returns
• Inventory carrying and warehousing costs
• Compliance, security, and risk-related costs
• Contract administration and supplier-management costs
• Disposal, decommissioning, and residual value

 Module 9: Financial Evaluation Tools 

• Cash-flow identification
• Time value of money
• Present value and Net Present Value
• Payback period
• Return on investment
• Break-even analysis
• Useful life and residual value
• Sensitivity and scenario analysis
• Understanding the impact of changing assumptions

 Module 10: Risk-Adjusted TCO and Value Assessment

 Identifying supplier and ownership risks

• Estimating the financial impact of risk
• Probability and impact assessment
• Risk-adjusted cost scenarios
• Considering quality, sustainability, and business continuity
• Balancing cost, performance, and risk
• Distinguishing lowest price from best overall value

 Module 11: Using Analysis in Negotiation and Supplier Management 

• Converting cost analysis into negotiation objectives
• Identifying cost-reduction and cost-avoidance opportunities
• Challenging supplier assumptions constructively
• Evaluating supplier concessions and trade-offs
• Establishing cost baselines and savings targets
• Monitoring cost performance after contract award
• Communicating recommendations to stakeholders

       Day 2 Capstone Workshop

• Build a simplified TCO model.
• Compare competing supplier offers.
• Conduct sensitivity and risk analysis.
• Identify negotiation opportunities.
• Recommend the supplier offering the best overall value.
• Present and justify their sourcing decision.