This method of evaluating the cost of each factor as a percentage of total purchases for the supplier. This method evaluates supplier performance using standard cost. By using this method the buyer must be able to identify additional costs that arise during the cooperation with suppliers. These costs are separate from the elements, namely the quality of supplier performance, service and price. For each of these costs will be converted into a form that describes the ratio of the cost of the incremental cost of purchasing a percentage of the total cost of the supplier. These three cost ratios are summed to obtain the ratio of the overall cost of the supplier and subsequently added to the price of the supplier, and then compared with the ratio of the cost of other suppliers.
This method is very complex in its application that requires a special design, a great company and a computerized accounting system properly to obtain accurate cost data.
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