Total Cost of Ownership

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The Total Cost of Ownership (TCO) method is a set of related concepts that allow for the quantification of costs for every activity along the supply stream. TCO takes into consideration all costs related to the acquisition, transportation, storage, and selling of purchased goods or services, so that sourcing decisions may be made strategically. Using the traditional Piece-Part Variance method of costing has been shown to underestimate these visible hidden costs by more than 15%.

The TCO calculator developed by NIST MEP and introduced in the session facilitates the side-by-side comparison of up to four suppliers. It also permits the analysis of multiple sourcing scenarios. TCO focuses on minimizing the total costs while maximizing value to the customer. It encourages a sharper focus on the big-picture concept of complete supply chain optimization.

Note: At the training, participants will receive a copy of the the NIST MEP TCO calculator. Participants should bring a laptop to the training if possible.

Appropriate For

Team members with purchasing/procurement responsibilities, logistic responsibilities, make/buy authority, negotiation responsibilities, and/or leadership responsibilities in analyzing and monitoring TCO parameters.

You Will Learn

  • About Total Cost of Ownership concepts, including key elements of TCO; comparison of piece-part variance method with TCO costing; the importance of an effective TCO strategy; and identifying and measuring TCO cost drivers
  • How to use the NIST MEP TCO calculator
  • How input data, interpret results, and use the output of the analysis to make strategic sourcing decisions, including make/buy decisions and off/on shore decision, comparing up to four sourcing options simultaneously, collaborating with other team members and departments, and conducting discussions with suppliers

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