CHAPTER 5

Price Versus Cost: Supplier Evaluation and Relationship Management

One of the first and most important rules of ensuring ethical and sustainable procurement is understanding the fundamental difference between price and cost.

Both price and cost are terms that are used interchangeably, often without understanding the differences between them.

Figure 5.1 shows visually the differences between the two. Price is simply the amount of money exchanged in return for goods or services. Cost includes the insurance, lead time, ethics, and potential fluctuation of currency as well as other factors that should be evaluated.

Price is the amount of money a person parts with to secure their purchase. Nothing else is included in the price element of ...

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