The Procurement Glossary » Open-Book Costing
Open-Book Costing
Sourcing & RFx
Definition
A pricing arrangement in which the supplier discloses its actual costs and agreed margin, so the buyer can see how the price is built up.
Explanation
Open-book costing is used in collaborative, long-term relationships to drive continuous cost improvement and build trust. Both parties can identify inefficiencies and share the resulting savings, aligning incentives around total cost rather than price alone.
Example
Under an open-book contract, the caterer shares ingredient invoices; when commodity prices fall, the buyer's price falls automatically.
Related terms
- Cost Breakdown — An itemised disclosure of the components that make up a supplier's price, such as materials, labour, freight, overhead and margin.
- Should-Cost Analysis — A bottom-up estimate of what a product or service ought to cost, built from its materials, labour, overhead and reasonable margin.
- Cost Savings — A reduction in the price or cost of a purchase compared with a baseline, delivered through sourcing or negotiation.
- Total Cost of Ownership (TCO) — The full lifetime cost of a purchase — not just the price, but delivery, installation, operation, maintenance, downtime and disposal.
Frequently Asked Questions
What is Open-Book Costing?
A pricing arrangement in which the supplier discloses its actual costs and agreed margin, so the buyer can see how the price is built up. Open-book costing is used in collaborative, long-term relationships to drive continuous cost improvement and build trust. Both parties can identify inefficiencies and share the resulting savings, aligning incentives around total cost rather than price alone.
Can you give an example of Open-Book Costing?
Under an open-book contract, the caterer shares ingredient invoices; when commodity prices fall, the buyer's price falls automatically.
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