Procurement Glossary
Open costing: transparent cost breakdown in procurement
November 19, 2025
Open costing is a key tool for transparent pricing between buyers and suppliers. The supplier fully discloses its cost structure and enables the buyer to analyze all price components in detail. This procedure creates trust, reduces information asymmetries and forms the basis for fair negotiations. Find out below what open costing means, which methods are used and how you can use them strategically.
Key Facts
- Complete transparency of all cost components from material to profit margin
- Strengthens trust between buyer and supplier through open communication
- Enables targeted cost optimization and fair price negotiations
- Particularly relevant for complex products and long-term partnerships
- Requires high data quality and a trusting business relationship
Contents
Definition: Open calculation - meaning and core elements
Open costing is a pricing procedure in which the supplier discloses its entire cost structure transparently to the buyer.
Key components of open costing
A complete open calculation includes all relevant cost components:
- Material costs and raw material prices
- Production costs including labor and machine costs
- Overheads and administrative expenses
- Profit margin and risk premiums
Open calculation vs. closed pricing
In contrast to closed pricing, where only the final price is communicated, open costing enables a detailed cost analysis. This creates transparency and forms the basis for well-founded product calculations.
Importance of open costing in Procurement
For strategic Procurement , open costing is an indispensable tool for cost optimization. It supports market analysis and enables an objective evaluation of supplier offers.
Methods and procedures
The successful implementation of open costing requires structured methods and clear processes between all parties involved.
Structured cost breakdown
All cost components are systematically recorded according to standardized categories. Material costs, production costs and overheads are shown separately. A detailed bill of materials forms the basis for the material costs.
Validation and plausibility check
Buyers must critically review and validate the disclosed calculations:
- Comparison with market prices and benchmarks
- Review of cost drivers and calculation logic
- Comparison with historical data and empirical values
Continuous cost monitoring
Open costing is not a one-off process, but requires regular updates. Changes in raw material prices or production processes must be communicated promptly and incorporated into the terms and conditions.
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Important KPIs for open calculations
Measuring the success of open costing requires specific key figures that evaluate transparency and cost efficiency.
Cost Transparency Index
This KPI measures the degree of cost breakdown and assesses the completeness of the costing data disclosed. A high index shows comprehensive transparency, while low values indicate gaps in information. Regular measurement supports the continuous improvement of costing quality.
Cost variance rate
The deviation between forecast and actual costs shows the accuracy of the open calculation:
- Material cost deviation in percent
- Production cost variance
- Total cost variance per period
Negotiation success through transparency
This KPI records the cost savings achieved through open costing compared to non-transparent negotiations. The measurement is based on the difference between original offers and final prices after costing analysis.
Risks, dependencies and countermeasures
The use of open costing entails specific risks that can be minimized by taking appropriate measures.
Information asymmetry and manipulation
Suppliers could deliberately submit incomplete or distorted calculations. Regular audits and validation by external experts are necessary to minimize risk. Sound market observation helps with plausibility checks.
Confidentiality and data protection
The disclosure of sensitive cost data requires strict confidentiality agreements:
- Clear regulations on data use and disclosure
- Secure IT infrastructure for data exchange
- Restricting access to authorized persons
Dependence on supplier cooperation
Open costing only works with cooperative suppliers. If there is a lack of willingness to be transparent, alternative procurement strategies such as multiple sourcing must be considered.
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Practical example
An automobile manufacturer implements open costing in the procurement of electronic components. The supplier fully discloses its cost structure: Material costs 45%, manufacturing costs 30%, overheads 15% and profit margin 10%. Through the detailed analysis, the buyer identifies optimization potential in material costs and suggests alternative components. The joint cost optimization leads to a price reduction of 8% while maintaining the same level of quality.
- Complete cost breakdown creates trust
- Joint optimization reduces overall costs
- Long-term partnership is strengthened
Current developments and effects
Digitalization and new technologies are fundamentally changing the application of open costing and creating new opportunities for transparency.
Digital calculation platforms
Modern software solutions automate the collection and analysis of costing data. Cloud-based platforms enable real-time updates and improve collaboration between buyers and suppliers. Digital procurement benefits considerably from these developments.
AI-supported cost analysis
Artificial intelligence is revolutionizing the analysis of open calculations through automated plausibility checks and pattern recognition. AI in Procurement enables the rapid identification of cost anomalies and optimization potential.
Sustainability-oriented cost transparency
Environmental and social costs are becoming increasingly important in open costing. Suppliers must also increasingly integrate sustainability aspects into their costing, which increases complexity but leads to more responsible procurement decisions.
Conclusion
Open costing is a powerful tool for transparent and fair pricing in procurement. It creates trust between buyers and suppliers and enables joint cost optimization. Despite the challenges of data protection and confidentiality, the advantages clearly outweigh the disadvantages. Modern digital tools and AI-supported analyses will further simplify the application and improve the quality of calculations.
FAQ
What is the difference between open and closed calculation?
With open costing, the supplier discloses all cost components transparently, whereas with closed costing, only the final price is communicated. Open costing enables detailed cost analyses and joint optimizations, but requires greater trust between the partners.
When is open calculation particularly useful?
Open costing is particularly suitable for complex products, long-term partnerships and strategic suppliers. It is advantageous when cost transparency is required for optimization or for products with volatile raw material prices. It also creates planning security for development projects.
How can the quality of open calculations be ensured?
Quality assurance is achieved through systematic plausibility checks, market comparisons and regular audits. Standardized calculation templates and clear definitions of cost components improve comparability. External validation by experts can provide additional security.
What legal aspects need to be considered with open calculation?
Confidentiality agreements are essential to protect sensitive cost data. Antitrust regulations must be observed, especially in the case of price agreements. Clear regulations on the use and transfer of data and on liability in the event of incorrect calculations are required.
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