Help Home/Creating Negotiations

Cost factors allow a buyer to identify and control for additional costs associated with a line item. There are two types of cost factors:

• Supplier cost factors identify additional costs associated with purchasing a particular negotiation line.

• Buyer cost factors identify additional costs associated in dealing with a particular supplier.

Cost factors can be added to lines in a negotiation document, to line defaults in a negotiation template, or to reusable lists (called cost factor lists).

Cost factors can be calculated as either a per-unit cost, a percentage of the line price, or a fixed amount for the line. A single line can have one or more cost factors (of any type) defined for it. All cost factors are added to the line price (the price being offered by the supplier per unit) to obtain the bid/quote price. The bid/quote price is the actual price per unit when all applicable cost factors are applied. Bid/quote price is calculated as follows:

line price + ((line price * percentage of line cost factor) + per-unit cost factor + (fixed amount cost factor / response quantity))

Example bid calculation

The following example shows how a supplier's response is adjusted to take into account all the cost factors defined by the buyer. The numbers represent the values entered by the supplier for the line price and all the cost factors.

• Line price = 30

• Percentage of line cost factor = 35

• Per-unit cost factor = 5

• Fixed amount cost factor = 15

• Response quantity = 100

Calculation: 30 + ((30 * 0.35) + 5 + (15/100)) = $45.65 (bid price)

Supplier Cost Factors

Supplier cost factors identify costs such as services, such as training or consulting, or discrete costs such as shipping fees. Buyers can specify supplier cost factors when they create the negotiation line and specify a target value for each cost factor (buyers can choose to display this value to the supplier). Suppliers respond with a bid/quote for these factors. Supplier cost factors allow you to:

• Identify suppliers with the lowest total cost per line not just the lowest item price.

• Take into account any additional costs or charges when considering outsourcing a project.

• Identify hidden activities or cost drivers to facilitate improved analysis and decision making.

• Support supply chain operations more efficiently by recognizing and analyzing how one organization's performance and costs affect another organization.

Note: The supplier's response prices to a line's cost factors are always rolled up into the line's total unit price, regardless of the type of negotiation outcome. Therefore, when creating a blanket or contract purchase agreement with a negotiation line that has a cost factor using a pricing basis of fixed-amount, you must enter a value for Estimated Line Quantity. See the information below on how the system uses fixed amount cost factors for further explanation.

Buyer Cost Factors

Buyer cost factors allow a buyer to control for tangible or intangible costs or benefits inherent in dealing with a particular supplier. Buyer cost factors account for both negative or positive aspects of dealing with a supplier. Such aspects could include the risk associated in dealing with a particular supplier because of supplier location, or possible negative past performance. Buyer cost factors are applied against a particular supplier for a particular negotiation line (note that in large and very large negotiations all buyer cost factors are applied against all lines for that negotiation). . Suppliers do not respond to buyer cost factors. Buyer cost factors are used in transformational bidding/quoting.

How the System Uses Fixed Amount Cost Factors when Comparing Responses and Determining Award Totals

When comparing competing supplier responses (for example on the Compare Bid page), any fixed amount cost factor(s) (either supplier or buyer cost factors) are added together and the total is divided by the number of units being offered by the supplier. That value is then added to the price being offered by the supplier together with other percentage of line and per-unit cost factors. this results in a per-unit price that reflects both the offer price and the effects of all cost factors. This allows you to more effectively evaluate competing responses.

( line price + (line price * % of line price cost factor(s) ) + per-unit cost factor) + (fixed amount cost factor / quantity offered by supplier)

Cost Factor Price Calculation

($100 + (100 * .20) + 3)) + (1000 / 25) = $163

When calculating the total award amount for a line, the system first calculates the per-unit price, which consists of the offer (or line) price plus the line price multiplied by any percentage of line price cost factor(s) plus any per-unit cost factor(s). This per-unit price is then multiplied by the number of units awarded. Finally, any fixed amount cost factors are added. This amount results in an award amount that correctly reflects affect of the line's cost factor(s).

( line price + (line price * % of line price cost factor(s) ) + per-unit cost factors) * quantity awarded) + fixed amount cost factor )

Award Total Calculation

(100 + (100 * .20) + 3) * 20 + 1000 = $3460

Cost Factor Lists

Reusable cost factor lists allow you to group several cost factors which are related or are typically used together. For example, you might create a list identifying normally expected transportation costs, for example, freight charges or import duty fees. Of you might create a list that identifies additional services such as consulting or training that will be required by a particular negotiation item. Once you have created a cost factor list, you can apply that list to any negotiation containing items to which those cost factors are applicable.

Using Cost Factors and Cost Factor Lists

Individual cost factors can be associated with t negotiation line, or a cost factor list can be defined that contains multiple cost factors that can then be associated with a negotiation line. A negotiation line can have both individual cost factors and cost factor lists associated with it. See Associating Cost Factors and Cost Factor Lists with Negotiation Lines for instructions on applying cost factors and lists to negotiation lines. See Applying a Buyer Cost Factor to a Supplier for instructions on associating a buyer cost factor to a particular supplier.