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Applications In Cost Modeling

Course Summary

Purchasing professionals only really earn their salary and become indispensable when they transition from tactical buying to Strategic Supply Management utilising effective Cost Modeling techniques. Prior to the fall of two great U.S. giants, MCI (telecommunications) and Arthur Anderson (accounting and consulting), Arthur Anderson was a supplier to MCI. Based on the Arthur Anderson philosophy of “billing your brains out,” Arthur Anderson was charging MCI over US$400 per hour for their young consultants to do nothing more than make copies of files for a period of several months. Why didn’t MCI catch this? The answer is simple. In the context of a multi-million dollar consulting arrangement, Arthur Anderson was simply the lowest bidder when MCI initially went out with its Request for Proposal and they won the deal based on the lowest price. Also, within the context of a major consulting gig, with multiple high cost consultants on board and numerous activities to be performed, the basic copying tasks did not even show up on MCI’s “radar screen! In effect, nobody at MCI knew until it was too late” This true example, emphases the point of our course, that Cost Modeling is more crucial and powerful than simply price analysis. Computer software can easily take three or four quotes and pick the lowest one but what it cannot do, without human interaction, is identify the true Cost to the organization. Understanding supplier and product costs can help the Supply Management professional, such as yourself; develop an appreciation of important cost drivers, which provides a starting point for cooperative relationships to reduce total supply chain costs and show your executive that Supplier cost modelling is an essential tool for corporate survival In this MasterClass, we will focus on the four key areas of Cost Modeling: 1.Cost Modeling Elements 2.Should Cost vs. Target Cost, 3.TCO-Total Cost of Ownership models, and 4.Rolling out best-in-class practices to your supplier(s).
This Masterclass in Value Added Procurement, Negotiation and Supply Relationship Managment is certified by the Missouri State University International Leadership and Training Center (ILTC) who provide customized, non-credit training and vocational programs for international students and professionals. Missouri State University ILTC have analysed this masterclass and confirm that it has the proper content and quality to get the university’s quality seal, that means that you’re going to get a top of the line course. Delegates receive a digital Certificate of Attendance from Missouri State University / ILTC

Benefits of Attending

  • Reduce costs of procurement

  • Create an environment where the supplier wants  to provide innovation

  • Be able to make and support sourcing decisions with key cost backups

  • Make sure profitability/margin is in place with consistent cost projections

  • Minimize PPV – Purchase Price Variances

  • Be able to drill into costs as opposed to simply comparing prices

  • Develop the ability to prepare a “Should Cost” analysis prior to discussions and negotiations with suppliers

  • Be able to mutually determine Target Costs so have a win-win price with suppliers

  • Develop a robust Total Cost of Ownership (TCO) model

  • Have the skills to prepare an accurate and meaningful budget


Who should attend this Applications in Cost Modeling Masterclass?

This highly practical and interactive course has been specifically designed for:​​

  • Procurement Directors / Procurement Managers

  • Buyers / Senior Buyers

  • Purchasing Professionals

  • Supply Chain Managers and other Supply Chain Professionals

  • Supplier Managers / Contract Managers

  • ·Business Owners / Executive Directors / Managing Directors / General Managers

  • Finance Directors / Finance Managers

  • Project Directors / Project Managers /Project Engineers

 PLUS anyone else who is interested in ensuring that the actual cost of suppliers is properly managed within your organization.

Course Contents

This course will be a blend of key concepts, group exercises and case studies with audience participation. 

Patrick has also coined the term and utilizes the concept of “Edutainment” where he blends light humor with key educational points. 

Accompanying this course will be detailed and robust supplemental materials that will allow you to refer back to the key points long after the programs ends so that you can take concept to reality.

  • Introduction to Cost Modeling


  • Understand the four-fold purpose of a budget which is to get pre-approved funding, set standards, monitor and most importantly, control


  • Compare and contrast the various types of budgets including Zero-Based, Line-Item, Capital and Flexible


  • Differentiate between a cost Avoidance (part of the increase), Reduction (the cost goes down) or Containment (you don’t spend more than the previous period)


  • Understand how Cost Modeling relates to Value Analysis and Value Engineering


  • Describe the five principles of Cost Modeling


  • Review both the costs of quality as well as the costs associated with inventory


  • Define a Spend Analysis and engage in a five-step model


  • Define Total Cost of Ownership-TCO and its three categories of Pre-Acquisition (getting ready to make the buy), Main-Acquisition (making the buy) and Post-Acquisition (after the product or service is shipped or received)

  • Review the factors that make up the Cost Driver Framework


  • Differentiate between cost Types vs. Behaviors vs. Decisions


  • Compare and contrast principles of Direct, Fixed, Variable and Mixed costs


  • Review and apply both Life-Cycle and Activity Based costing


  • Define Should Cost including a mathematical calculation


  • Define Target Cost including the three types: Price, Cost, Value


  • Review and apply three Overhead Allocation formulas


  • Compare and contrast key supplier Profitability ratios


  • Understand how to roll out these techniques to your supplier including the use of Reverse Marketing and the Customer/Supplier Symposium


  • Group Project – Concept to Reality


  • Wrap Up


  • Course Quiz with discussion


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