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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
Open calculation: An introduction
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.
Application of open costing in purchasing
Open costing enables purchasers to understand the exact cost structure of a product. By transparently disclosing all cost components, price negotiations can be conducted on a sound basis and potential cost reductions can be identified together with the supplier.
Calculation example
Initial situation: A buyer negotiates for a machine part that is offered by the supplier for €1,000.
Cost breakdown by the supplier:
- Material costs: 500 €
- Production costs: 200 €
- Overhead costs: 150 €
- Profit margin: 150 €
Analysis and negotiation:
- Reduce material costs: Jointly examine alternatives for cheaper materials or suppliers, e.g. 10% reduction to €450.
- Optimize production costs: Identify efficiency increases in production, e.g. 5% reduction to € 190.
- Review overheads: Analyze cost drivers and achieve savings of 10% to €135.
- Negotiate profit margin: Maintain a fair margin of €150 based on the overall cost reduction.
New target price:
- Total costs: 450 € (material) + 190 € (production) + 135 € (overheads) = 775 €
- Plus profit margin: € 775 + € 150 = € 925
Thanks to the open calculation, the price was reduced from € 1,000 to € 925, which corresponds to a saving of 7.5 %.
Evaluation and strategic findings
✓ Critical success factors
→ Trust-based supplier relationship: building a collaborative partnership as the basis for honest disclosure of cost data
→ Purchasing expertise: In-depth understanding of cost structures and production processes for effective analysis
→ Systematic documentation: structured recording and analysis of calculation data for sustainable optimization
⚠ Challenges and limits
→ Information asymmetry: risk of incomplete or falsified cost information from suppliers
→ Resource expenditure: High time and personnel expenditure for detailed cost analyses
→ Market dynamics: Fluctuating commodity prices and exchange rates make long-term calculations difficult
Future trends and strategic implications:
"Digitalization will revolutionize open costing through automated data collection and analysis."
→ Integration of blockchain for transparent cost tracking
→ AI-supported plausibility checks of the calculations
→ Real-time based cost models with automatic adjustment
→ Collaborative cost engineering platforms
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.
