Total cost of ownership

When making the outsourcing decision or comparing suppliers, many firms make the fundamental mistake of focusing only on the quoted price, ignoring the fact that many factors affect the total cost of using a supplier. For instance, suppliers have different replenishment lead times. Does it pay to select a more expensive supplier with a shorter lead time Or consider suppliers that have different on-time performance. Is the more reliable supplier worth the few extra pennies it charges per piece  

Factors Influencing Total Cost of Ownership Performance Category Category Components 

Supplier terms Net payment terms, delivery frequency, minimum lot size, quantity discounts Yes 

Delivery costs All transportation costs from source to destination, packaging costs Yes 

Incoming quality costs Cost of inspection, defectives, and rework Yes 

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Once the bids are tabulated for specification compliance in the form of a chart for easy review by all others involved in the project, an overall evaluation should be made, factoring in energy cost, first cost, and time value of money using an established economic equation. Most companies have a standardized formula. If the data are available, total cost of ownership can be estimated, which for larger equipment is considered a good measure for evaluation. 

A useful example of sustainable design comes from BASF, and their development of the eco-efficiency tool. This tool seeks to integrate the combined aspects of each of the three pillars in an attempt to quantify the most sustainable products and illustrates some of the concerns associated with evaluating sustainable products. For example, the economic analysis includes a total cost of ownership that goes beyond the purchase price of a product to incorporate the cost of operation, the cost of environmental health and safety, and the cost of labour. Thus, even though a product may have a lower purchase price, it may be more expensive to use and thus costlier over the total life cycle of the product. 

Energy intensity. Energy intensity is an obvious target for green product design. This is the easiest dimension to identify commercial benefits. Lower energy intensity can clearly either save manufacturing costs, or total cost of ownership for the user. 

As for any new class of product, total cost of ownership and operation of fuel cells will be a critical factor in their commercialization, along with the offered functionality and performance. This total cost of ownership typically has several components for power systems such as fuel cells. These components include fuel cost, other operating costs such as maintenance cost, and the first cost of the equipment. This first cost has a significant impact on fuel cells competitiveness. 

PERO Innovative Services has developed the equipment and the peripheral devices in such a way that they optimally adapt to the desired cleaning process and minimise the costs during the complete life cycle of the equipment (according to LCC - Life Cycle Costing, formerly accurately related to as TCO - Total Costs of Ownership, since traditional accounting systems in most cases regard a period which is too short, as the costs as well as the benefits of the system incur over a long time utilisation of the equipment). 

Above all, the value creation process has to focus on the Total Cost of Ownership (TCO), not just the purchase price. The principal levers in optimizing TCO... 

Case example 2 How Company B reduced the Total Cost of Ownership for caustic soda (Fig. 15.6). 

The cost of validation can appear high if the total cost of ownership for a compnter system is not taken into acconnt. Validation can reportedly more than pay for itself throngh incnrred benefits over the operational life of a system. This book has looked at validation metrics and methods for identifying and implementing validation performance improvements. Opportnnities for redncing the cost of validation include the following ... 

Target contracts 156 TCO. see Purchasing and supply management, total cost of ownership (TCO) Technical limits 133, 158 Technology search-and-licensing functions 60 Texaco 94... 

Provides consistent information on environmental product performance and total cost of ownership implications... 

Khot, S.N., Hwang, J., Anderson, J., Coppens, K., Faham, A., Sheskey, P. How very-low-viscosity coatings reduce the total cost of ownership of coating operations. Tablet Capsule 2012,4-9. 

In many industries, the provision of spare parts and associated services represents a significant component of supply chain profits. Some studies [23] estimate US sales of spare parts and after-sales services to be 8% of the annual gross domestic product (GDP) or 1 trillion. Others [28] surest, for example, that in 2001, General Motors earned relatively more profits from its 9 billion in after-sales revenues than it did from 150 billion in car sales. Another estimate [124] suggests that the total cost of ownership of a product may far exceed the amount spent on the initial product purchase and may vary between five and twenty times the original product cost. The main conclusion from these studies is that managing spare parts supply chains and related services after a product is sold may have a significant impact on both primary demand as well as on profits. 

What strategies can the manufacturer adopt to decrease total cost of ownership The following su esdons are four different approaches observed in industry [124] ... 

Integrated Solutions Nokia realized that an important issue with cell phone providers was both provision of the cell phone as well as choice and upgradeability of the equipment associated with managing customer calls. Nokia came up with a list of standard plug-and-play equipment that were guaranteed to work seamlessly with all the Nokia-certified equipment. This confidence in the continual provision of certified equipment enabled its customers to purchase Nokia products, knowing that the total cost of ownership could be optimized. 

Life cycle cost analysis Total cost of ownership Whole-life cost... 

The operation of a large scale electrolysis system implies first of all a huge and sustainable investment for the customer or operator, to which great expectations are knotted to. Besides this investment, mainly operation and maintenance costs have major influence on the economics. In the industrial content, most of the time the total costs of ownership (TCO) are taken into account for evaluating the time frame for the return on investment (ROI) , which lies between 3 and 5 years normally. The key performance indicator is the overall equipment effectiveness (OEE) as a result of the multiplication of availability, productivity and quality rates (Fig. 12.5). 

But the requirements of the market will change disruptively and large scale electrolysis systems have to be available at least from 2018 on. The industrial standard should provide an optimum of costs by reaching a high efficiency at the same time. The total costs of ownership will be the most important topic, not only functionality. Green hydrogen will be able to establish itself, if its production costs are comparable to the current hydrogen costs. 

In summary, you wantto measure the value you create for your customers. Some examples of such measures are the payback period for investments in your goods and services, the return they get on the investments they make in your goods and services, the savings they have in the total cost of ownership, and the fixed costs they can avoid by buying from you. By comparing your performance on the appropriate metrics with your competitors, you can identify where you provide superior value to your customers, and communicate that to your customers to expand your market presence. By improving your performance on the appropriate metrics over time, you can improve your maiket presence over time. 

Total Cost of Ownership (TCO) All the costs associated with buying, supporting, and operating a product or a component. 

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