Why it is a good idea to provide a target cost when you have an RFQ

The other day I got on the subject of providing vendors with a target cost when reaching out for a quote on a product. Someone had emailed me about a prospective project and had told me it was their understanding that one should not provide vendors with target costs with requesting quotes. I told this person that when I was in the wholesale industry I always worked for companies who gave vendors target costs and that I have adopted this practice in my own business. And I have come to see it as a great SOP that can save companies a lot of time and money. In fact, I have never understood whey some people do not want to provide target costs but I think it is in the hope that they will be able to get a product for much cheaper than if they were to suggest a target cost to the vendor. I this thinking is a gamble and I never advise it. I described why in another blog post last year. Target Costs

However as I thought more about target costs I came up with this analogy. Let’s say you were the manufacturer and someone came to you and wanted a quote on a product and just told you to quote without providing a target cost. I don’t know about you but my inclination would be to believe this person did not know much about their product and its “true” cost. I might not even take them seriously depending on their order QTYs. On the other hand if someone came to me and wanted a quote on a product and told me that my quote had to be around X amount of dollars I would assume that this person knew his/her business and product in depth. I would take them seriously and provide them with a cost that would hopefully be in the neighborhood of what they were expecting to pay. This is the kind of company I would want to do business with.

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