Lot’s of discussion around broadening our perspective beyond cost – but what do we mean. Usually folks talk about TCO – again, what’s that. Here’s a quick attempt to outline considerations:
Cost is not a dirty word although price may be. Often, people say cost when they mean price. Everything in supply management is essentially a Cost and ought to be captured under the broad umbrella of TCO. Supply Management is responsible for about 75% of the total COGS. In order to deliver supply management driven sustainable competitive advantage, total network costs must:
- Go down more and faster than the competitions
- Go up less and slower than the competitions
- Stay the same while the competitions costs increase
- Not just moved to other network members (typically suppliers)
Furthermore, costs are investments. Holistically, this includes, but isn’t limited to, the following COST OF:
- Quality
- Money
- Opportunity
- Data accuracy & visibility
- Delivery / AOS
- Network Inventory
- Innovation
- Reputation
- Risk mitigation
- Network optimization
- Relationships
- Honesty
- Technical competence
- Commercial competence
- Usage, lifecycle, disposal, environmental impact
- Administration
Let’s look at TCO more broadly than most definitions. Here’s a quick features list (similar to the above listing) and, as always, TCO acumen / success is a function of the quality of supplier relationships:
Straight forward elements:
- Price including freight
- Delivery performance
- Quality performance
Quantifiable but often neglected:
- End-of-life costs
- Obsolescence
- Shrinkage
- Salvage
- Admin
Sometimes forgotten – Cost Modeling
Often Bogus – Payment terms (pure trade-off; move versus change/reduce cost) & often inventory unless there is actual network reduction
Tough to measure but maybe most critical:
- Innovation
- Risk (mitigation and monetization)
- Impact to the bottom line / peer comparison
- Supplier Perception
- Forecast (beyond accuracy toward visibility and Truthfulness)
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Joe Sandor
Professor
Michigan State University
Lecanto FL
(517) 488-8931
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