To determine if a supplier’s quoted price is reasonable an analyst has several options. The above pyramid details the level of detail and effort of various sourcing options. By incorporating a bottoms-up analysis the Operations team can increase its understanding if they are receiving best in class pricing.
For example, at low procurement volumes the quotes received from several suppliers my be similar. This would lead a company to believe they are getting best in class pricing. However, the quoted pricing from all suppliers needs to be vetted against a bottoms-up cost analysis (BUC).