Cost Factors and Cost Factor Lists

External Cost Factors

External cost factors are influences from outside the organization that have additional monetary implications and add to the final cost for the buying organization. You can use external cost factors to obtain a more realistic idea of the total cost of an item or service by factoring in any additional costs beyond just price. Such costs could include additional costs such as consulting or training. Cost factors can be added to a negotiation line, to lines in negotiation templates, or to collections of cost factors (called cost factor lists). A negotiation line can have more than one cost factor (of any type) defined to it. You can create these types of cost factors.

Fixed Amount Cost Factors

A fixed amount cost factor is a set value for the line, regardless of the quantity of units being asked for by the line.

Per Unit Cost Factors

These cost factors are specified as a set value that's multiplied by the quantity of units being asked for by the line.

Percentage of Line Price Cost Factors

Percentage of line price cost factors are specified as a percentage. The percentage of line price is calculated by multiplying the unit price by the percentage of line price cost factor value.

Internal Cost Factors

Supplier may be qualified for the business but may still have some hidden costs or operational drawbacks. These operational drawbacks may be deficiencies such as past performance issues, logistics cost due to supplier location, additional project management needs, and so on, which can be quantified and added to the supplier's responses as internal costs. As buyers, you can see the transformed amount calculated by adding these costs, and have the option to show it to suppliers. Responses with the lower transformed amount is ranked higher. Visibility into the transformed amount drives competitive bidding so that the supplier with top overall rank is the real winner in terms of the total cost.

Internal cost factors are determined by the buying organization and applied to the supplier's response amount or line price.

You can apply internal cost factors of these types to supplier response amount. You can then see the transformed response amount and the overall rank at the response header level.

Percentage of response amount
Fixed amount

You can apply internal cost factors of these types to negotiation lines, lots, lot lines, and group lines. You can then see the transformed line price and transformed line rank at the line level, and overall rank at the response level thereby aiding the award negotiation process.

Fixed amount
Percentage of line price
Per unit

For more details, see Apply Internal Cost Factors.

Along with applying internal cost to the negotiation lines for suppliers you can set the default internal cost factors for negotiation lines, where in instead of adding internal cost factors line by line, you can set the default internal cost factors for negotiation lines, which are automatically added when negotiation lines are added. For more information, see Define and Use Default Internal Cost Factors in Negotiations.

You can create these types of cost factors.

Fixed Amount Cost Factors

A fixed amount cost factor is a set value added to the response amount or line amount. For lines or lots, it's added to line regardless of the quantity of units being asked for by the line.

Per Unit Cost Factors

These cost factors are specified as a set value that's multiplied by the quantity of units being asked for by the line.

Percentage of Line Price Cost Factors

Percentage of line price cost factors are specified as a percentage. The percentage of line price is calculated by multiplying the unit price by the percentage of line price cost factor value.

Percentage of Response Amount Cost Factor

Percentage of response amount cost factors are specified as a percentage. The percentage of response amount is calculated by multiplying the total response amount at the response level.

Overall Rank

The overall rank is based on the transformed amount. Lower the transformed amount, higher the overall rank. If a supplier doesn't have an internal cost factors assigned, then the response amount is considered for the calculation of the overall rank.

Here are things you can do or you need to know when you're working with internal cost factors.

As a procurement administrator or category manager, you can create a new negotiation style or update an existing negotiation style to enable the internal cost factors at the response level, line level, or both in a single auction.
If same set of internal cost factors are often applied to multiple negotiations, then you have the option to create a negotiation template and add internal cost factors to it, set their values, and then use this template to create negotiations.
The value of the internal cost factors can be negative or positive. The negative internal cost factors will reduce the transformed amount.
You can add the internal cost factors and set their values at the time of negotiation creation. Additionally, you can adjust the value of internal cost factors applied to the response amount after viewing supplier responses. You can only update line level internal cost factors in negotiations that are in draft status.
If you don't want to show transformed amounts and ranks to suppliers, and want to use it for your internal analysis only, you must deselect the response rules Display transformed amount to suppliers, Display transformed line rank to suppliers, and Display overall rank to suppliers.
When the transformed amount for more than one response is same, the earlier response gets the higher overall rank.
Overall rank isn't calculated for partial responses. To ensure overall rank is calculated for all supplier responses, you must set response rules to not allow suppliers to respond with partial lines or quantities. Also, if a supplier's access is restricted to one or more negotiation lines, then overall rank isn't calculated for responses from that supplier.

Cost Factor Lists

After you create external or internal cost factors, you can create lists of cost factors. Buyers can then apply external cost factor lists to negotiation lines to quickly identify the commonly occurring secondary costs that also must be negotiated. Buyers can create their own personal cost factor lists using external cost factors that have been defined in the application. Buyers can apply internal cost factor lists to transformed amounts at the response header level, negotiation lines, lots, lot lines, and group lines.