However, not all costs are equal. If we look at a balance sheet, we see there are three main types of costs: COGS (Cost of Goods Sold), SG&A (Selling, General, and Administrative Expenses), and D&A (Depreciation and Amortization), and that COGS usually represents 80% of the costs under enterprise control. So, unlike many e-Procurement firms that just try to reduce the cost of the transaction, which only serves to reduce SG&A expenses, we focus on reducing COGS, as every dollar reduction in COGS has five to six times the impact of a dollar reduction in SG&A.

To reduce COGS, we start with the understanding that COGS is a combination of raw material costs, labor costs, production overhead costs, and margin. All of these costs can be reduced with the right insight — and this is where we are different than a standard sourcing application that just tries to get you the lowest price per unit through a volume buy or leverage-based raw material buy. Then we help you identify the right product, produced by the right process, to meet your needs at the lowest possible cost.

The platform plugs into market feeds and our database of standard pricing that we have built up for North America and China, and this gives us a first level estimate. Secondly, it allows the buyer to enter their costs, or their supplier’s quoted costs, for each variable and refine that cost model further. Finally, it allows them to use a supplier’s VPE to calculate precise cost or set up a VPE specific to their supplier if their supplier does not already have one.

In addition, we realize that the best results often come from collaboration and from taking advantage of expertise on both sides of the table, so we have been working hard on improving our supplier interface that allows buyers and suppliers to share designs and data back and forth, through a new CAD-independent viewer that’s coming out in our next release, so that both parties can work together. And, unlike some vendors, who shall go unnamed, that force suppliers to pay a registration fee to be listed in, or gain access to, their system, our basic viewer is totally free to the suppliers of any buyer who licenses our system. This keeps the supplier in the picture, in a non-cost prohibitive fashion, and helps the buyer find the best product at the best price, produced from the best production process, for their needs. In our view, that’s what enterprise cost management is all about.