Cost Models

Cost Models

 

On some occasions, it may not be possible to obtain cost data from a supplier. In other cases, the cost data obtained may appear unrealistic or support prices that are unacceptable. Under these conditions, it may be necessary for the purchasing for to develop its own cost model to estimate what the supplier’s costs should be. The development of such models requires the application of both accounting and industrial engineering skills and is beyond the scope of this chapter. It is sufficient at this point simply to say that this approach, though not used extensively by small and medium-size firms, is used commonly by leading-edge firms that have the technical resources available.