Cost-Benefit Analysis (CBA) is a crucial decision-making tool for organizations, particularly in the telecom industry, where quantitative assessments often drive strategic actions. By evaluating the monetary values associated with a project, CBA provides evidence-based insights to inform opinions and mitigate biases in project planning. This data-driven financial feasibility analysis process enables companies to assess the potential returns of new projects, considering both the economic costs and benefits involved.
Key Highlights
- Declining market shares in the telecom industry due to intense competition, alongside the negotiation levers adopted by suppliers, posed challenges for the client
- Prerequisite for an increased focus on CBA across various cost elements
- The adoption of a low-cost mix surged, to gain a competitive edge in the telecom industry
Overview
Today, telecom industry players strive to keep up with fierce competition by offering promising solutions and services that provide more efficient networks while managing costs. This competitive landscape has resulted in telecom companies facing losses across different regions. To address this challenge, leading firms in the telecom industry are conducting cost-benefit analysis studies to reduce expenditures, improve their pricing strategies, and meet the increasing demand for seamless networking capabilities among consumers. Cost-benefit studies enable telecom industry players to understand the cost structure of their supply chain activities and develop superior negotiation strategies with suppliers.
Moreover, SpendEdge’s cost-benefit analysis solutions help firms in this industry space to gain a stronger foothold and achieve a superior competitive advantage.
The Procurement Pain Point and Insights Offered
A global telecom industry client was facing predicaments in gaining strategic insights into the negotiation levers adopted by suppliers to ensure low-cost raw material procurement. As a result, they wanted to identify the sourcing and procurement pricing elements and their influence on the overall cost.
Confronted with fierce competition and the imperative to enhance profit margins, our telecom industry clients sought assistance from the cost-benefit analysis experts at SpendEdge to navigate their business challenges. Thus, our experts provided a cost-benefit analysis, which helped the client estimate the impact of each cost driver on the overall cost and predict the cost movements across all cost elements.
Insights Offered
The CBA study recommended that clients with low-cost mix models devise superior negotiation strategies with suppliers and consequently cut down on their overall cost across the supply chain. Further, enabling supplier collaboration and monitoring performance may result in a reduction of ~ 5% in material cost and around 5%–10% in supplier management cost.
The analysis also considers intangible benefits and costs, such as employee morale and customer satisfaction. In addition, it includes discounting cash flows and what-if scenarios for distinct options. Thus, the structured decision-making approach helps clients choose whether to pursue a new project, make a new hire, or invest in a particular initiative tailored to the organization’s needs and objectives.
Business Outcome
The CBA engagement helped the global telecom industry client comprehend the cost structure across the supply chain. Through this analysis, the client made a complex decision systematically, which determined the net gains, cost-benefit ratio, and overall economic benefit. The analysis helped them cut down on the costs associated with the sourcing and procurement activities. Moreover, the client formulated a robust, low-cost mix model to reduce overall costs and verbalize improved negotiation strategies with their current suppliers.
Key areas covered through cost-benefit analysis study
Key cost elements
Key cost elements typically include raw materials, labor, overhead expenses, transportation, inventory carrying costs, and quality assurance.
Identifying the key cost elements driving the overall operational cost
Raw materials, labor, and transportation costs are often the primary drivers of overall costs across industries.
Achieve a low-cost mix
Achieving the lowest cost mix involves optimizing procurement strategies, streamlining operations, leveraging economies of scale, minimizing waste, and negotiating favorable terms with suppliers. Further, having a strong relationship with key strategic suppliers results in trust and mutual benefits. Thus, it reduces costs, improves supply chain resilience, and enhances the ability to innovate and gain a competitive edge.
Total cost of ownership
The Total Cost of Ownership (TCO) encompasses all costs associated with acquiring, operating, and maintaining a product or service over its entire lifecycle, including initial purchase price, operating expenses, and disposal costs.
Best negotiation levers
Effective negotiation levers include volume discounts, payment terms, delivery schedules, quality guarantees, supplier incentives, and exploring alternative suppliers to drive down costs and secure favorable terms.
