👹 Don't get him wet, keep him out of bright light, and never feed him after midnight.
Supply Chain Success Cards Shuffle (5/53): 𝟓♦️ 𝐓𝐂𝐎 𝐀𝐧𝐚𝐥𝐲𝐬𝐢𝐬
To learn about this project and download the full deck: https://lnkd.in/dUpB9Gne
Total Cost of Ownership (TCO) Analysis evaluates all direct and indirect costs associated with acquiring, operating, maintaining, and disposing of products or services throughout their entire lifecycle, providing supply chain professionals with a complete picture beyond initial purchase prices.
However, it is not obvious to spot the hidden costs (maintenance, training, disposal, and opportunity costs), collect needed data (accurate cost info across multiple departments, suppliers, and time periods), balance short-term vs. long-term trade-offs (immediate budget vs lifecycle value optimization), and engage stakeholders (convincing decision-makers to consider total lifecycle costs rather than low prices).
How to know you are not bringing a nightmare to your operations?
♦️ Map all cost categories - Identify and document direct costs (purchase price, shipping, installation), indirect costs (training, maintenance, downtime), and hidden costs (disposal, opportunity costs, compliance) across the entire product lifecycle
♦️ Establish data collection processes - Create standardized templates and workflows to gather cost information from procurement, operations, maintenance, and finance teams, ensuring consistent and accurate data capture
♦️ Build lifecycle cost models - Develop spreadsheet or software-based models that calculate present value of all costs over the expected asset lifespan, including depreciation, inflation, and risk factors
♦️ Compare alternatives holistically - Use TCO analysis to evaluate competing suppliers, products, or services by comparing total lifecycle costs rather than just initial purchase prices, revealing true value propositions
♦️ Integrate TCO into decision frameworks - Embed TCO analysis into procurement policies, supplier evaluation criteria, and capital investment processes to ensure consistent application across the organization
To build a winning hand, you can combine 5♦️ with: K♠️, Q♦️, 6♥️
Want to learn more?
📢 Rafael A. Vela (in/rafaelvela) - Procurement expert specializing in TCO optimization and Strategic Sourcing
📖 "The Complete Guide to Total Cost of Ownership (TCO)" by Sam Carter
🌐 "The Total Cost of Ownership in Hydraulic Procurement" by Stella Hou @ https://lnkd.in/dtEUtcUK
What's been your experience with TCO analysis in procurement decisions? Which hidden costs have surprised you most when conducting comprehensive lifecycle cost evaluations, and how has TCO analysis changed your supplier selection process?
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