Total Cost of Ownership Estimator®
Most companies make sourcing decisions based solely on price, oftentimes resulting in a 20 to 30 percent miscalculation of actual offshoring costs. The Total Cost of Ownership (TCO) Estimator is a free online tool that helps companies account for all relevant factors — overhead, balance sheet, risks, corporate strategy and other external and internal business considerations — to determine the true total cost of ownership. Using this information, companies can better evaluate sourcing, identify alternatives and even make a case when selling against offshore competitors. See Impact of Using TCO Insead of Price for further expanation.
How the Total Cost of Ownership Estimator works:Once you input your unique data into the calculator, you will receive your total cost of ownership analysis complete with:
- Calculations of 30 cost factors for each source
- An accumulation of all costs into cost categories
- The TCO for each source
- Line charts showing each source’s current price and TCO and a 5-year TCO forecast
- Line charts showing your cumulative cost by category for each source
Benefits of the Total Cost of Ownership Estimator:
- Customized: Calculations are based on your unique data.
- Flexible: Users may skip values that are not essential
- Enables direct comparisons by providing a total cost for each source
- Complete: Incorporates 30 cost and risk factors
- Strategic: Provides the current TCO value, as well as a 5-year forecast based on the user’s forecast of wage and currency changes
- User-friendly: Automatic calculation of freight rates for 17 countries and explanations and references for Input factors.
- Transparent: Cost calculation formulas are shown on the Results page
- Credible: Recognized by the U.S. Commerce Dept.
- Affordable: Free to use
Who should use the Total Cost of Ownership Estimator?The Total Cost of Ownership Estimator is designed for businesses of all sizes and allows users to determine which sources best meet their company’s profitability and strategic objectives. Company users include:
- Supply chain managers
- Manufacturing management
- Industrial engineering
- Strategic planning
- Line management
The TCO Estimator is also a useful tool for:
- Salespeople to sell against imports
- Economic development groups and government to enable regional reshoring and foreign direct investment
- Universities to train the next generation of manufacturing managers
How to use the Total Cost of Ownership Estimator:
- We recommend first watching this webinar: Supply Chain Lesson Learned from COVID-19: How to Get Started with Total Cost Of Ownership (TCO)
- To get started, Login to your TCO Estimator account, or create a new account if a first-time user.
- Enter your information as prompted by the fields in the calculator. Keep in mind the following tips:
- Complete as many of the fields as possible (Some items will require estimates.)
- Group parts or products into families of parts with similar characteristics
- Select one part from each group
- Start with parts that have delivery, quality or IP problems
- Be consistent with estimates (e.g. products with the highest IP risk should also be assigned a higher IP risk cost; products with frequent design changes should be assigned a higher innovation cost; politically less stable countries should have a higher political stability risk)
- Email or call us for help
Important Notes:1. The TCO Estimator is written for calculating the total cost of outsourced parts or products (e.g. offshore versus U.S.) If your sources are in-house instead of outsourced, you will need to take the following steps:
- For offshore: Use the transfer price from offshore instead of the “price.” Confirm that the transfer price produces the targeted profitability offshore.
- For U.S.: Use your company’s standard domestic cost. (The objective is that the local operation recognizes the extra costs associated with offshoring.)