2-7.2 Sources for Analysis

Individuals involved in a should-cost analysis should include analysts from the purchase/SCM team, as well as representatives from Finance, Engineering, and other relevant technical specialists. They will draw from public sources that include:

• Industry benchmarks.
• Commodity market movements (show historical costs of commodities so cost elements can be correctly calculated by taking into account price fluctuations).
• U.S. Census data (e.g., statistics on manufacturers; ratios such as material to labor, or labor costs based on percentage of sales).
• Dun and Bradstreet reports (list cost data such as net income based on sales percentage and supplier’s SIC).
• United Nations Standard Products and Services Code (UNSPSC) (allows analysts to work backward to determine costs, based on industry data).
• Current business and financial ratios (e.g., materials to sales ratio).
• Annual reports.
• Other financial information (e.g., Securities and Exchange Commission (SEC) filings for publicly traded companies, market trends, Institute for Supply Management (ISM) reports and forecasts).

These sources are combined with client or purchase/SCM team estimates and any supplier-provided information. purchase/SCM team estimates incorporate commodity expertise and previous experience. Supplier information can consist of cost breakdowns from previous proposals, bills of materials (BOMs), and any other insights into supplier depreciation, labor, materials, and overhead. The analysts use these combined sources to determine which cost elements are out of line in comparison with industry benchmarks, as well as the total price.