The cost development tracker provides firm facts of the cost development of any given product based on few simple inputs. This is a useful tool in negotiations as it helps secure that only valid cost increases are turned over to the purchaser.
Only registered users have access to the cost development tracker.
Please note that the tool is still in a Beta version. We are still making a few modifications to the tool for a while, but it is fully operational to use already now. We are working on a few modifications like the ability to store and retrieve your own input data. These modifications will be launched later.
Click here to launch the cost development tracker
The latest data is for January 2010.
How to use
Firstly, the tool requires specification of general data related to the specific trade:
- Specify the price of the last trade with the seller in the trade currency, and specify the trade currency.
- Specify the date of the last trade
- Specify the date of the current offer
- Specify seller's base currency
- Specify buyer's base currency
- Specify the total weight of the product (in kilogram)
The next step is to enter the direct variable labour cost's share of the product price, and the yearly growth rate. Both values is in percent.
The final steps relate to the weight of the raw materials used in the product.
- Specify the weight for each commodity
- If the supplier's actual price for the commodity differs from the market price, alternative prices can be entered in the right hand side. These need to be entered in the same currency as the market price.
- If additional commodities are necessary,specify the weight, the price "before" (per kilogram), the price "now" (per kilogram), the currency and the description for these.
NB! Always use comma to specify seperate decimals. Eg. 9½ should be entered as 9,5
Press "Update" to view the result.
The end result of this is "how much should the price change, based on the raw materials fluctuation". It gives you the fair value based on the increase or decrease of raw materials. But you can also input machine time or any other cost driver that you need.
There are some considerations to the result of the Cost Development Tracker:
1. The Cost Tracker does not know how good your last purchase price was. If 100 EUR was last years purchase price, the Cost Tracker will tell you how much you should pay today - based on a fair measurement of the raw materials fluctutations. But it doesn't tell you whether the original 100 EUR was too high or not. Sometimes you know, as a buyer, that you have made a very good bargain and the 100 EUR is a very low price. But it could also be that the 100 EUR is a price that you argued as being too high, but in the end was forced to accept it. The Cost Tracker doesn't know this, and so you must put this knowledge into context.
2. One way to get a rough estimation of the starting price of 100 EUR is to see the gross profit percent. This gross profit is calculated very simply by this formula: "Selling price - raw materials cost - labour costs = gross profit". This is a rough calculations that gives you the gross profit without considerations to the machine time, fixed costs and so on. But the gross profit gives you some idea of what is left for fixed costs. In itself the gross profit cannot tell you the full picture, but once you start comparing one product with another you get a better view and understanding whether the current gross profit is high or low. But please remember that the aim of the Cost Tracker is not the original price, but to estimate the fair development of the price since last time, based on raw materials fluctuations.
3. A good question to the supplier during negotiations is this: "When did you last buy materials or make fixed price contracts with your own raw materials suppliers?" The answer to this can give you valuable insight. An example: If todays copper price is 6000 USD, but the supplier made a fixed price negotiation with his raw materials supplier 4 months ago when the price was 4500 USD, then this should be used in the negotiations. Simply open up the Cost Tracker and type 4500 USD in the field at the right hand side of the screen, and press update. The Cost Tracker then doesn't use the current 6000 USD price of copper but uses 4500 USD - which is to your benefit.
4. Always put the result in context. For example: During a recession many suppliers are willing to cut prices (and their profit) just in order to secure orders. The Cost Tracker may tell you that a price of +3% is fair, based on how the raw materials have increased. But the supplier is perhaps willing to accept -2% based on the general economic circumstances of a recession. So the Cost Tracker is only telling the fair value, but you have to put this into context of the general economy, the competitive environment of the supplier and so on.