Blog Details

  • Sourcing, Costing, Product Development,

    Blog Title
    July 03, 2020

    The success of any organization depends on expertise on product sourcing. At the time of product development, the Top Management gives the product development team the target of the end Product cost for Sourcing. Cost is one of the very important aspects of any business. To sell the product in the mass market, the brand has to be very competitive with differentiating quality. If the product will not be competitive it will not sell in the mass market until and unless it has high brand value and developed for a Rich class who needs exclusivity & ready to pay a good amount for unique products.

    Sourcing and costing (How to identify resources): What are the three key elements of costing and Sourcing. How to decide the source from which Organization one should source a particular product? Following three criteria has been defined to finalize the right source or Organization.

    Quality: Required quality by customer, Buyer or Management expectation or we can say brand market position.

    Price: the price of each product should be less or the same as compare to similar product’s supplier.

    Timely delivery and commitment:  Lot of products are seasonal and have deadlines to launch in the market. If things get delayed then whole investment become waste or the company’s balance sheet get affected, So timely delivery is a very important aspect. In terms of commitment the required quantity should be delivered as per the purchase order in agreed quality, it should not be less.

    At the time of Costing following elements have

    to be taken care.

    1. List Down What all is components are needed to make the final product. 
    2. In what quantity each element is needed for this takes technical team assistant to understand average or weight of each component (measuring defined unit for required components). The required unit will be multiplied with Qnty to source in bulk 
    3. How to define the correct cost of each component. Cost depends on the amount of raw material that has been used in each unit including wastage. 
    4. once we have all the raw material cost, product manufacturing cost including all operations has to be added into it.
    5. Final finishing and packaging cost need to be added to the product cost.
    6. Factory overhead has to be added to the product cost which depends on the infrastructure in terms of factory rants, electricity, employee’s wages (Working hours) and depreciation.
    7. After doing all the above exercise each organization has a certain benchmark for adding a margin considering all front end cost, transportation and Texas as well as expected margin, promotions and discounts. The organization decide MRP maximum retail price adding all the above parameters.
    8. After deciding MRP the marketing team review the merchandise analyses whether it is competitive in the market as per target at the time of product development. if the product seems to be expensive but has better quality features and better sustainability. The marketing the team highlight the features of the product for the marketing strategy to make customer convince to try the product.