Historic cost and the Historic column role

Historic cost

If you have a cost history for items from previous events that are listed in the bid sheet for your current sourcing event, you can use this information to determine price baselines, calculate savings, and perform more advanced scenario analysis.

In order to correctly leverage historic cost information, it is critical to understand how the cost was calculated. This ensures that when analyzing historic cost against current total cost, you are comparing similar values. For example, your primary cost calculation could be Unit Cost * Volume. If your historic cost is based on the unit cost alone, price baselines will be skewed and calculated savings will be inaccurate as a result of comparing two disparate calculations.

There are a number of ways to configure historic cost to enable savings calculations in your event. However, you must first create a column containing the historic cost values.

Adding a historic cost column

You can create and populate a historic cost column offline in the bid sheet using Excel and then upload the bid sheet, or create and populate the column within Sourcing Optimizer on the Columns tab. Ensure that you configure the column to be hidden from bidders so that they cannot see the actual historic cost values.

For additional information, see Columns tab and Adding an input column.

Figure 1. Historic costs column in the bid sheet

A historic cost column must be a purchaser-input, numeric, mandatory column. You must enter a value for each lot.

Assigning the Historic column role

To enable savings calculations during scenario evaluation and for analysis purposes, you can assign the Historic column role to the column that contains the historic cost. This method is useful when the values in the historic cost column have been calculated in the same way that the primary cost calculation is calculating the total cost for your event.

For example, if the totals in your historic cost column are the sum of Freight Charges plus Origin Charges plus Destination Charges, and the primary cost calculation in your event is Freight Charges + Origin Charges + Destination Charges, you can assign the Historic column role to the historic cost column, as both can be compared for savings calculations.

You can only assign the Historic column role to purchaser-input, numeric columns.

To assign the Historic column role, complete the following steps:

  1. Go to Design > Bid Sheet.
  2. Click the Columns tab.
  3. In the Column roles area, click Assign roles.
  4. Under Historic, select the column with the historic cost values.
  5. At the top of the page, click Save changes.
Assigning the Target column role
Figure 2. Assigning the Historic column role

For additional information, see Assigning a column role.

Using the Cost calculation rule to calculate historic cost

You can also use the Cost calculation rule to calculate historic cost. This method offers additional configuration options and settings. You can use secondary cost calculation formulas that leverage multiple columns; individual bid sheet columns; or formula columns for calculating the historic cost.

Secondary cost calculation formulas are particularly useful when your primary cost calculation formula contains some columns for which you have historic costs and some for which you do not, or when you must scale historic costs to compare them with the primary cost calculation.

For example, if the primary cost calculation is Forecasted Total Annual Shipments * Mileage per Trip * Linehaul Rate per Mile but you only have historic information for Mileage per Trip and Linehaul Rate per Mile, you must scale your historic cost so that they can be compared with an annualized cost calculation. Configuring a secondary cost calculation formula of Forecasted Total Annual Shipments * Historic Mileage per Trip * Historic Linehaul Rate per Mile enables you to leverage the forecasted total annual shipments from the current event and apply it to the historic columns so that the calculated savings are comparing similar values. Effectively, you are calculating what your historic cost would be if the supplier's forecasted annual shipments were applied and measuring it against the primary cost calculation.

The Cost calculation rule also enables you to use formula columns to calculate your historic costs. This means that you could configure the above secondary cost calculation formula in a formula column so that the total calculated historic costs appear in your bid sheet. This provides insight into the calculations on a per-line item basis before you evaluate scenarios. You can then select the column when configuring the Cost calculation rule for calculating the savings and savings percentage.

Cost calculation rule configuration
Figure 3. Cost calculation rule configuration

Using the Cost calculation rule to calculate historic cost also enables you to account for new lanes or line items in your event that you do not have historic cost information for and thus contain 0 values. Using the Exclude feature you can omit values below — and above — specific thresholds, allowing you to rule out 0 values.

The Cost calculation rule method also enables you to create multiple historic cost calculations for different scenarios.

For additional information, see The Cost calculation rule, Adding a secondary cost calculation formula, and Adding a formula column.

Historic costs and savings

After you evaluate a scenario, Sourcing Optimizer compares the historic costs against the primary cost calculation and provides savings and savings percentage values.

Evaluate scenario — Savings
Figure 4. Evaluate scenario — Savings

A further breakdown of savings against the historic costs is provided on the Results tab of the scenario.

Scenario — Results tab
Figure 5. Scenario — Results tab

For additional information, see Scenarios page and Rules tab.