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Understanding the factors of cost can be the most difficult piece of the Research phase, particularly in unfamiliar categories. Cost factors include the materials that make up the final product (plastic, copper, oil, etc.) as well as the other indirect components of cost (labor, freight, processing, etc.). Identifying the components that go into the cost of a product or service can help identify the right types of suppliers. For example, if a product has a rather high cost for freight, you may want to consider a local source of supply in order to minimize that freight cost. Knowing that copper is a major component of raw material costs in a certain product may help you decide to put off sourcing that product until supplies reach an optimal level.

Similarly, understanding the cost and margin will help you provide guidance to suppliers with regard to your requirements. For example, if you are purchasing a mix of products with various profit margins and you are able to be selective about which products match given requirement sets, you will likely want to lean toward those with the lowest costs and highest margins wherever possible, offsetting higher cost or lower margin products that are necessary for other requirements. This puts you in an optimal position for the Negotiations phase as you will understand the variables driving cost and where to focus your most efforts.