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Traditionally, during cost estimation people are biased towards “last year’s” and historical cost without any detail calculation and innovation. This process has a flaw that it does not take into account the price changes and recent market innovation. So, the concept of Zero Based Costing has come up to make the deficiency.
Zero-based costing starts from a “zero base” and every items of cost estimate are analyzed for its needs (type of items required, quantity, size, capacity etc) and costs (current market price based on assessed need). Costs are then built around regardless of whether total cost is higher or lower than the previous one.
With zero based costing, the organization is better equipped with more current knowledge on costing and certainly can have a strong position while negotiating with a supplier.
Following ZBC help you to overlook the market again from a zero level basis. This is double-edged sword. Whether you are going to gain more because your supplier is decent and the market goes down or you are going to lose a lot because your supplier ain't so honest.
Furthermore ZBC tactic is a time consuming tactic, which demands lot of human resources.
According to my opinion, ZBC ain't a proper way to negotiate
