How does one prepare for negotiations with suppliers?
Solution: An advanced form of negotiation that looks beyond just the lowest price and more towards thinking about business solutions using price analysis and cost analysis – understanding the supply market, the cost structure of the product/service and the importance of Supplier Relationship Management – with the goal of attaining reasonable pricing.
Cost Management covers collaborative cost optimization exercises with suppliers, usually conducted after commercial negotiations. By leveraging ANKLESARIA’s AIMDRIVE methodology, suppliers are engaged in collaborative exercises designed to remove cost out of the supply chain. The AIMDRIVE methodology contains the following steps:
- Agree on the need to manage costs
- Understand goals from different perspectives
- Obtain history of prices paid and volume purchased
- Determine selection criteria for a Cost Challenge
- Identify critical costs
- Develop Process Map, Industry Cost Profile (ICP)
- Build Basic or Detailed Cost Model
- Should Cost Model (Product/Service)
- Price Discipline™ Model
- Total Cost of Ownership (TCO) Model
- Determine future, impactable cash flows
- Select critical costs to focus on
- Measure each critical cost
- Define cost drivers by formula-based costing
- Quantify cost drivers
- Define Key Cost Drivers and Develop Strategic Options
- Define the key cost drivers (causes for critical costs)
- Develop strategic options (solutions) for the key cost drivers
- Reduce, Eliminate or Change Activities that cause costs
- Adapt generic or create custom Strategy Statements
- Conduct robust risk-benefit analysis
- Quantify risks and benefits
- List qualitative risks and benefits
- List constraints, if any
- Identify net potential value
- Set priorities for implementation of strategies
- Implementation plan
- Adapt generic action plans associated with each Strategy Statement or create custom action plans
- Assign responsibilities and set completion dates for each action
- Develop contingency plans
- Verify the plan with cost monitors
- Develop verification plan to monitor strategies implemented
- Record progress of implementation of all action items
- Quantify results achieved
- Prepare report for management
- Eternal
- Capture lessons learned and prepare for next cost challenge
- Record the status of value realized against overall Strategy Statements
- Select next cost element, cost driver or strategic option and go through the AIM&DRIVE process
- Establish a process to leverage ideas from one project to other similar projects or categories
AIMDRIVE-AI leverages AI to promote proactive cost management by enabling the following:
- Enhanced Decision-Making
- With AIMDRIVE-AI, by leveraging real-time market data, Bill of Materials (BOM) analysis, and detailed cost breakdowns, a company can accurately benchmark their costs against industry standards.
- AIMDRIVE-AI helps teams break down costs and understand where the money is going for each part of the product or service through AI developed ICPs (Industry Cost Profiles).
- Improved Negotiation Strategies
- AIMDRIVE-AI uses cost models, like the Should-Cost Model, to help teams figure out what the product should really cost and compare that with what’s being charged. It also uses industry data to check if the price is fair.
- These insights, coupled with adaptable units of measure and historical data trends, allow procurement teams to approach negotiations with a strong, data-backed position, ensuring suppliers align with market expectations and help secure more favorable terms.
- Market Competitiveness
- AIMDRIVE-AI helps find the important elements that make up the cost by looking at past prices and how much was bought, so teams can focus on the right areas to save money. In today’s fast-paced business environment, staying ahead of market trends is crucial for maintaining competitiveness. AIMDRIVE-AI tracks key cost drivers that allow organizations to anticipate market shifts.
- This proactive approach helps businesses benchmark supplier pricing, monitor market trends, and secure advantageous contracts that ensure alignment with current industry standards, keeping them ahead of their competitors.
- Supplier Collaboration and Cost Reduction
- A successful approach to cost management requires a close partnership with suppliers. AIMDRIVE-AI supports collaboration by identifying critical costs and offering detailed cost breakdowns.
- This level of transparency fosters joint initiatives that not only refine processes but also reduce waste and inefficiencies. By working together with suppliers, organizations can co-develop innovative solutions that drive mutual efficiency and cost savings.
- Efficiency Gains
- One of the key advantages of AIMDRIVE-AI is the significant efficiency gains it provides. By automating data analysis and standardizing cost evaluation processes, the tool reduces manual workload and accelerates decision-making.