The Concept of Open Book Costing

Open Book approach is an innovation in the purchasing methods, and many suppliers are not willing to participate because of the confidentiality of the business. There are situations wherein suppliers are reluctant to develop partnering relation to a buyer company. First, when supplier perceived buyer to be an unimportant client in the marketplace as compared to those companies who do not care for partner relations. (CIPS) Second, when the supplier does not feel comfortable with the arrangement, because some suppliers do not like their practice to be scrutinized. In this case, a trust relationship has not been developed yet in buyer-supplier relation. Trust is one of the basic business ethics that has to be developed in the supplier-buyer relationship in partnering arrangement. Trust level of relationship takes time to develop and there are times suppliers shy away from this type of business transaction. Next thing is pricing. Suppliers feel that prices will be la rocked up and will drive prices up when expenditure is tightly controlled. In other way, suppliers cannot increase their prices when there is a need to because of the agreement. (Williams, I.) Third, the consideration of size and power of an organization. (CIPS) CIPs says that it is easier to make partnering agreements when the balance of power in the transaction is more or less equal. There are ways to reduce the negative impact of open-book management on the organization. First is to make the package attractive to suppliers, and then second, get the people in the organization understand the financials necessary in tracking business performance. To make partnering arrangement attractive to supplier, the organization should make the benefits of partnering more attractive than the traditional approach of purchasing. The arrangement should provide substantial benefits for both parties involved Dr. Carl Frahme, in his study on Open Book Management, said that that it is a way of running a company that gets everyone to focus on helping the business make money.