Friday, May 2, 2014

Another angle on TCO - Do you know what your Priceberg is?

Check out this great article by Kate Vitasek: Don’t Re-shore a Priceberg
Apr 11, 2014


"Best Value takes procurement professionals out of the price-only focus so that they understand the total cost of the deal or enterprise in front of them. This is TCO. Best Value and TCO go hand-in-hand, and when understood and implemented properly, pricing becomes value-based and becomes a win-win."

"Put simply, it's not about how much you pay, it's about how much you get. In a nutshell, that is the basic difference and tension between price and value. Best Value approaches become the bridge spanning that tension because determining the true cost and value equation translates into confidence that companies are getting the best deal."

"The advantage of using the TCO model is that businesses can make clear, informed decisions when it comes to price and value decisions, and when and where to outsource.
The researchers Jaconelli and Sheffield describe the intent of Best Value as enabling a balance between cost and quality considerations, while ensuring ongoing value for money and promoting continuous improvement to further value for money.”

“Best Value = Optimum Benefit
(sum of criteria as defined by the buyer)
– Buyer's Total Costs

Documenting the entire picture by capturing the costs of the buyer and the supplier is the only way to get to the actual total costs. This includes all cross-departmental costs within the buyer's organization as well."

"Identifying all the true total costs is not so straightforward, however, and it is often not easy. Drilling down to the "hidden" or below-the-surface costs is crucial because those hidden costs can comprise about 80 percent of total costs. The Priceberg shows the importance of looking at the hidden costs."

Use the Reshoring Initiative's free Total Cost of Ownership Estimator

1 comment:

  1. Total Cost is imperative to understanding reshoring. You can't just look at the till cost only. In some countries, they do not observe intellectual property rights. Take for example a young man that was on recently on Shark Tank and because he could not get U.S. injection molders to make his fruit infused water bottle. He took it overseas and the overseas vendor was soon stealing his intellectual property. This is an example that happens all the time and is a hidden cost in The Priceberg.

    Russ Moore

    Russ Moore is a mechanical engineer and President & CEO of Ingenuity Nation. Ingenuity Nation is a privately held firm that assists companies in keeping their on shore costs down, amongst other services. For more information, visit