Before choosing a supplier, the purchaser should analyze the total cost of ownership (TCO). In the broadest definition, the total cost of ownership of an intermediate or consumer goods includes all costs to manage and control the timing and conditions of performance , accelerating the passage of stocks, transportation, inspection and testing, rework , storage , waste, warranty , maintenance, downtime , return to customers and lost profits. In other words, the total cost of ownership is comprised of the purchase price and all other expenses related to this product.
An approach based on the full cost requires good interaction between the technologists, service quality, technical department and procurement services to coordinate requirements, such as specifications and tolerances as they affect the decisions made by managers on supplies. To achieve cost leadership, it is important that members of the Procurement executives are involved in the procurement process at early stages.
To determine the cost of components, TCO models are used with the purpose to reduce or eliminate the cost for each component, instead of simply comparing prices. Of course, it is a difficult task to identify and track all elements of cost and use information so that different providers were compared fairly.
TCO concept is based on the fact that the acquisition cost is only a part of the total cost of ownership of the goods or services. Although TCO is used to determine the actual costs and decide on supplies , TCO can also be used for other purposes: 1) to seek ways to reduce costs , and 2) to assist in the evaluation of suppliers and select the most suitable of them , and 3) to obtain data necessary to negotiate , and 4) to focus on providers seeking opportunities to reduce their costs , and 5) to emphasize the benefits of expensive , but high-quality products , and 6) to understand what is expected of suppliers; 7) to form a long-term supply , 8) to make predictions of performance indicators .
There are a number of methods, which can be estimated using the total cost of ownership. Each company must create or use ready- simulation costs, which best reflects their needs. At the close relationship between the buyer and seller may agree to the supplier inform the buyer of cost data. In other situations, the buyer or the team dedicated to sourcing, you may need to create your own cost model to use it to prepare for negotiating with the supplier. There are different approaches to model the cost of the informal to the most modern sophisticated computer models. Companies typically use standard costs model (standard cost models), which can be applied to a variety of situations of supply, or model specific costs (unique cost models), which are being developed for a particular type of product or in special situations.
One way to analyze the cost component shows a model that takes into account three components of costs: 1) the cost to the transaction (for example, to identify the needs, skills and inclusion of data sources on the supplier of interior systems), 2) transaction costs (e.g., purchasing, inspection incoming goods, and administrative expenses), and 3) the cost after the transaction (for example, the elimination of marriage, repairs and maintenance) . The cost of acquisition can also be divided into separate elements. Each of these elements buyer can learn, trying to find areas where you can cut costs or even prevent their occurrence. Cost elements in nature can be both tangible and intangible, which is why many of them are difficult to assess.
The idea of this model is that one should try to identify and analyze all the factors that affect the total cost of ownership, as these factors determine most of the policies in the field of supply. For example , long-term and close relationship the buyer and the supplier's partnerships and alliances , attracting suppliers and procurement professionals in the early stages - all of which can help to better model the overall costs , improve the progress of the negotiations and decisions , resulting in the company's competitiveness will increase.
