The AOP Category Cost Drivers Series is a new content offering created in partnership with ProcurementIQ.
Today we will uncover the primary cost drivers impacting laptop computers.
Most of the costs associated with manufacturing laptop computers are fixed and already amortized over the full production volume. Competition and direct to consumer sales have driven most of the margin out of this market, even for individual laptop sales. This leaves little room to further negotiate down equipment costs – even with corporate volumes.
The cost drivers procurement is less likely to be able to impact add up to 90% of product cost (hardware 38%, software 23.6%, wages 20.3%, other direct materials 8.1%). This leaves only 10% of the purchase price (6.1% in overhead and a 3.9% margin) for procurement influence. Procurement’s best bet (taking into account the cost to run a large scale sourcing project) is to take a total cost of ownership approach, understanding how the laptops will be used and folding in service/support and peripherals. Rather than working towards paying less over time for the same laptops, procurement should strive for better equipment and more inclusions for the same price.
How to Use this Information
Although the prices paid by procurement are affected by general supply and demand, supplier cost drivers are an important data source. They not only provide procurement with insight into how large or small the savings opportunity is likely to be, they also illustrate the relative efficiency of each prospective supplier’s operation. Procurement can request this information in an RFP and benchmark against their responses, as well as using it as a point of discussion in subsequent negotiations. Once a contract is in place, procurement can track the underlying input costs to support cost reduction negotiations or to understand the validity of supplier cost increase requests and respond appropriately.
We have partnered with ProcurementIQ to dig into their treasure trove category intelligence reports, with new insights every Friday. To dig deeper into the Laptop Computers category, and over 1,000 other indirect spend categories, visit procurementiq.com.