Pricing and Cost Analysis in Purchasing

Learn different price-setting strategies and review price and cost analysis to ensure you're creating the most value for your organization.

One of the most important and complex decisions a business or organization has to make is how much to pay for its items or services. The buying professional should be able to easily detect prices that are too high. Thus pricing decisions must be given careful consideration when buying industrial products and services. The price of a product or service should be expected to cover cost of production, promotion and distribution, plus reasonable profit. In order to obtain the most efficient and acceptable price the purchasing professional must make sure that they are aware of market conditions and prices associated with quality levels required for the buying firm's needs. The effective buyer must become an expert for the items that they purchase. The objective of price-cost analysis is not to get the lowest price, but to obtain the best value with consideration for delivering time, acceptable quality levels, in the appropriate quantities. In general price is important; however, remember it is only one of many variables that are included in purchasing decisions.