Procurement Glossary
Should-Cost Library: Systematic cost analysis for strategic procurement
November 19, 2025
A should-cost library is a systematic tool for cost analysis in strategic procurement that provides buyers with a sound data basis for negotiations and supplier evaluations. This structured collection of cost benchmarks and models enables companies to define realistic target prices and evaluate cost structures transparently. Find out below what a should-cost library is, which methods are used, and how you can use it strategically for your purchasing success.
Key Facts
- Systematic collection of cost benchmarks and pricing models for various Categories
- Enables data-driven negotiations through transparent cost driver analysis
- Supports strategic supplier evaluation and make-or-buy decisions
- Significantly reduces information asymmetries between Procurement suppliers
- Basis for continuous cost optimization and price validation
Contents
Definition: Should-Cost Library
A should-cost library is a structured database containing detailed cost models and price benchmarks for various products and services.
Core components of a should-cost library
The main components include material costs, manufacturing costs, overhead costs, and profit margins. These components are systematically recorded and regularly updated to reflect current market conditions.
- Raw material and material prices by region and quality
- Production times and labor costs of different production processes
- Overhead factors and industry-specific surcharges
- Market profit margins by product category
Should-cost library vs. traditional price comparisons
Unlike simple price comparisons, a should-cost library systematically analyzes the underlying cost drivers. While traditional approaches only consider end prices, the total cost tree methodology enables a detailed breakdown of all cost components.
The importance of the should-cost library in Procurement
The Should-Cost Library forms the basis for data-driven negotiations in strategic procurement decisions. It supports the product group strategy through transparent cost structures and enables well-founded make-or-buy analyses.
Methods and procedures
The development of a should-cost library requires systematic data collection and continuous maintenance using structured analysis methods.
Data collection and cost modeling
The basis for this is a comprehensive market analysis using various data sources. Internal cost data is combined with external benchmarks to develop realistic cost models.
- Supplier surveys and cost breakdowns
- Market price analyses and industry studies
- Reverse engineering and product analysis
- Historical cost data and trend analyses
Implementation and structuring
Systematic structuring is based on product group structure and degrees of complexity. Standardized templates and evaluation criteria are developed to ensure consistent application.
Validation and updating
Regular validation through market comparisons and supplier feedback ensures that the data is up to date. The sourcing strategy is continuously adapted to new findings.
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Important KPIs for should-cost libraries
Measuring the success of a should-cost library requires specific metrics that evaluate both data quality and business value.
Accuracy and reliability
The deviation between forecast should-costs and actual market prices measures the accuracy of the model. A deviation of less than 10% is considered the target value for established Categories.
- Average deviation between target cost and market price
- Accuracy rate for price predictions
- Validation rate based on supplier data
Use and application
The frequency of use in procurement processes and the coverage of various Categories its practical relevance. Integration into portfolio analysis Procurement enhances its strategic value.
Business benefits
Cost savings through improved negotiating positions and optimized supplier selection demonstrate the ROI of the Should-Cost Library. Shortening procurement cycles through well-founded decision-making bases further increases efficiency.
Risk factors and controls for should-cost libraries
The implementation and use of should-cost libraries entails specific risks that must be minimized through appropriate control mechanisms.
Data quality and timeliness
Outdated or inaccurate data can lead to incorrect cost estimates and suboptimal procurement decisions. Regular validation and systematic data updates are essential for reliability.
- Establishment of fixed update cycles
- Multiple validation through various data sources
- Continuous plausibility checks
Overdependence on models
Too much focus on should-cost models can limit flexibility in negotiations. Reducing complexity must not lead to a simplification of complex market dynamics.
Confidentiality and data protection
Sensitive cost data requires appropriate security measures and access controls. The disclosure of information to suppliers must be carefully considered in order to maintain competitive advantages and strengthen category governance.
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Practical example
An automotive supplier develops a should-cost library for electronic components. Through systematic analysis of semiconductor prices, manufacturing costs, and logistics expenses, the company creates detailed cost models for various component categories. In a tender for control units, the Procurement uses Procurement data to identify unrealistic offers and conduct targeted negotiations. The result: 15% cost savings compared to the originally best offer through well-founded arguments based on cost driver analyses.
- Systematic data collection from market and supplier sources
- Development of standardized cost models by component category
- Integration into tendering processes for data-based evaluation
Current developments and effects
Digitalization and artificial intelligence are revolutionizing the development and use of should-cost libraries in modern procurement.
AI-supported cost modeling
Artificial intelligence enables automated data analysis and pattern recognition in complex cost structures. Machine learning algorithms identify cost drivers and forecast price developments with greater accuracy.
- Automated data collection from various sources
- Predictive analytics for cost forecasts
- Real-time updates through continuous market monitoring
Integration into digital procurement platforms
Modern e-procurement systems integrate should-cost libraries directly into tendering and negotiation processes. This enables seamless use throughout the sourcing pipeline and significantly improves decision-making quality.
Sustainability and ESG factors
Sustainability costs and ESG criteria are increasingly being integrated into should-cost libraries. This development reflects the growing importance of sustainable procurement and regulatory requirements.
Conclusion
Should-cost libraries are an indispensable tool for strategic procurement, creating significant competitive advantages through systematic cost analysis and data-driven decision-making. The integration of AI technologies and digital platforms enhances their effectiveness and enables more accurate cost forecasts. However, successful implementation requires continuous data maintenance, adequate resources, and strategic embedding in the procurement organization. Companies that use should-cost libraries professionally have been shown to achieve better negotiation results and optimize their cost structures in the long term.
FAQ
What distinguishes a should-cost library from simple price lists?
A should-cost library systematically analyzes the underlying cost drivers, whereas price lists only record final prices. It provides detailed breakdowns of material, manufacturing, and overhead costs, thereby enabling well-founded negotiation arguments and realistic target price definitions.
How often should should-cost data be updated?
The frequency of updates depends on market dynamics. Volatile markets require monthly updates, while stable Categories can be updated Categories . Critical cost drivers such as raw material prices should be monitored continuously and adjusted immediately in the event of significant changes.
Which data sources are most valuable for should-cost libraries?
The most valuable sources combine internal experience with external market data. Supplier cost breakdowns, industry studies, raw material price indices, and proprietary reverse engineering analyses form the foundation. External consulting firms and industry associations provide additional benchmarks and validation opportunities.
How can the ROI of a should-cost library be measured?
ROI is measured by direct cost savings, improved negotiation results, and reduced procurement cycles. Typical metrics include the percentage cost reduction in renegotiations, the accuracy of cost forecasts, and the time saved in supplier evaluations. An ROI of 300-500% is realistic with professional implementation.
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