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Open calculation: definition & important aspects for buyers
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Open calculation in a nutshell:
Open costing is a transparent presentation of all cost components of a product or service by the supplier to the customer. For the purchasing department, this transparency enables well-founded price negotiations and the identification of cost reduction potential in the supply chain.
Example: An automotive supplier discloses the complete cost structure of a component to its customer, broken down into 45% material costs, 25% production costs, 15% overheads, 10% logistics costs and 5% profit margin, allowing potential savings of 8% to be identified in joint workshops.
Contents
What is open calculation?
Open costing is a business management tool in purchasing in which the supplier provides the purchaser with full transparency regarding the cost structure of a product or service. All cost components such as material costs, working hours, overheads and margins are disclosed. The aim is to gain an in-depth understanding of the price composition in order to negotiate fair prices and jointly identify cost reduction potential.
Core elements of open costing
Significance for purchasing
In purchasing, open costing provides a deeper insight into the cost drivers of products and services. The transparency gained enables companies to optimize processes together with their suppliers, reduce costs and achieve competitive advantages. It promotes long-term relationships and strengthens mutual trust, which leads to more stable supply chains and better quality.
Open calculation: From negotiation-based pricing to transparent cost disclosure
Open costing is becoming increasingly important in procurement as companies look for effective ways to increase cost efficiency and competitiveness. The increasing complexity of global supply chains and growing pressure to optimize costs is creating a need for greater transparency between buyers and suppliers. The transition from traditional negotiation techniques to an open, collaborative approach makes it possible to jointly identify potential savings and build sustainable business relationships.
Old: Negotiation-based pricing
Traditional approach: In traditional procurement, prices were mainly determined through tough negotiations, with the focus on the final price and the supplier's underlying cost structures remaining largely unknown. Tools such as tenders and requests for quotations dominated the process. Buyers attempted to achieve price reductions through market knowledge and negotiation skills. However, this method was often characterized by mistrust, as suppliers kept their cost structures secret and focused on maximizing profits. This led to short-term savings, but rarely to long-term partnerships or far-reaching cost reductions.
New: Open Book Accounting
Open book accounting: The modern approach of open costing is based on the complete transparency of the supplier's cost structures. Through open book accounting, all cost components such as material costs, production costs, overheads and margins are disclosed. This enables the buyer to understand pricing and work together with the supplier on cost reduction measures. Innovative digital platforms and analysis tools support this process by ensuring the secure exchange of sensitive data. The benefits lie in the promotion of trust, the identification of efficiency gains and the creation of win-win situations that lead to long-term partnerships.
Practical example: Application in the automotive industry
A large car manufacturer implemented open costing with a supplier of transmission components. Through cost disclosure, it was discovered that raw material costs were higher than necessary due to material waste. Together they developed a program to reduce waste, which lowered material costs by 7%. In addition, work processes were optimized, reducing production costs by a further 5%. Overall, this led to a 10% reduction in the unit price and annual savings of €2 million. In addition, the collaboration strengthened the business relationship and laid the foundations for future joint projects.
Conclusion on the open calculation
Open costing is a valuable strategic tool in modern purchasing that enables sustainable cost savings through transparency and partnership-based cooperation. Despite challenges such as high resource requirements and possible information asymmetry, the advantages outweigh the disadvantages: well-founded price negotiations, optimized supplier relationships and identified savings potential. With increasing digitalization and AI-supported analyses, the importance of open costing for successful purchasing strategies will continue to grow.
