Profit, Price and Cost Analysis

When developing a category or procurement plan, the financial analysis of the suppliers in the supply market, their pricing strategies, and the total cost of the category are collectively called profit, price and cost analysis [PPCA]. Profit analysis involves comparing the profitability of potential suppliers against each other, and also identifying trends through time. Price analysis involves decomposing the tendered prices into their constituent parts, such as materials, labour, overheads and profit. The buyer is looking for opportunities to release value. Cost analysis implies both ‘should-cost’ analysis, (an estimate of what a realistic price should be) and total cost analysis. Total cost analysis involves analysing both the purchase price and all other costs associated with the acquisition during its life cycle such as maintenance, training, consumables and disposal. See also Profit, Should-Cost Analysis and Total Cost of Ownership.