Another angle on TCO - Do you know what your Priceberg is?
Check out this great article by Kate Vitasek: Don’t Re-shore a Priceberg Apr 11, 2014
Excerpts:
"Best Value takes procurement professionals out of the price-only focus so that they understand the total cost of the deal or enterprise in front of them. This is TCO. Best Value and TCO go hand-in-hand, and when understood and implemented properly, pricing becomes value-based and becomes a win-win."
"Put simply, it's not about how much you pay, it's about how much you get. In a nutshell, that is the basic difference and tension between price and value. Best Value approaches become the bridge spanning that tension because determining the true cost and value equation translates into confidence that companies are getting the best deal."
"The advantage of using the TCO model is that businesses can make clear, informed decisions when it comes to price and value decisions, and when and where to outsource. The researchers Jaconelli and Sheffield describe the intent of Best Value as enabling a balance between cost and quality considerations, while ensuring ongoing value for money and promoting continuous improvement to further value for money.”
“Best Value = Optimum Benefit (sum of criteria as defined by the buyer) – Buyer's Total Costs Documenting the entire picture by capturing the costs of the buyer and the supplier is the only way to get to the actual total costs. This includes all cross-departmental costs within the buyer's organization as well."
"Identifying all the true total costs is not so straightforward, however, and it is often not easy. Drilling down to the "hidden" or below-the-surface costs is crucial because those hidden costs can comprise about 80 percent of total costs. The Priceberg shows the importance of looking at the hidden costs."
Use the Reshoring Initiative's free Total Cost of Ownership Estimator™
