What is 'open book costing'?

Open book costing is a method primarily aimed at promoting transparency in supplier relationships. This approach allows both parties—buyer and supplier—to share financial information related to the cost structure of goods or services being provided. By doing so, it fosters trust, collaboration, and a mutual understanding of the cost elements involved in production or service delivery.

When both parties have access to detailed cost data, it can lead to more informed decision-making and negotiation. This arrangement helps to clarify how costs are derived, which can be beneficial in cost-saving initiatives and for resolving disputes concerning pricing.

The focus on transparency inherently enhances cooperation as both sides can work together to identify efficiencies and areas for improvement, making the supplier relationship more strategic rather than purely transactional. This level of openness can also help in developing joint risk management strategies and aligning objectives, ultimately leading to a stronger partnership.