Is Cost Transparency That All Important ?

Research shows that when a company divulges information about the cost of producing its products,  consumers become more attached  to the product or to the company, potentially increasing loyalty among its consumer base.

In corporate trade, where a firm sells its products or services to another company, the impact of cost transparency can be similarly beneficial. In my personal experience, working as the buyer for various for multi-national companies, I highly favoured suppliers who were very cooperative in terms of providing details of their cost breakdown.

1. It shows integrity and helps to build trustworthiness.

It is a demonstration that the supplier is operating in a sustainable environment and at a very reasonable margin and has nothing to hide.

In a retail scenario, where ethical supply chain is fast becoming important to consumers, this can directly impact reputation and loyalty to customer base.

2. It can set the platform for collaboration between supplier and customer on managing costs and create a win-win situation for both parties.

If cost transparency is not only focused on squeezing the company’s margins to the barest minimum, but the genuine interest to understand cost drivers with the aim of both supplier and customer working collaboratively on ways to efficiently manage these cost drivers, then there is a higher chance of acceptance to implement.

3. It can increase the supplier’s capability to align to the objective of its customer, which is an important element in a joint effort to achieve competitive advantage.

It increases the ability of both parties to jointly identify opportunities in the supply chain to improve efficiency, and prioritize actions or projects that will have the optimum impact to the supply strategy

4. It reduces the requirement for hard negotiations and instead focus on partnership and collaboration.

Having an aligned understanding of cost elements, cost drivers, what’s important to the overall delivery of the product  or services, could lead to easier cost discussions.

Requesting cost transparency is a crucial element in a supplier-client relationship where there is a level of collaboration, but it may not be an easy task when a supplier is being managed at an arm’s length.

So for suppliers, when a client requests for details of the quote, it should be taken as a sign or a step to going up in the ladder of a supplier relationship framework.