| Determine the Total Cost of
Ownership categories that the supplier's value
added services or product features affect
and the profit areas it could impact for the
customer's. There are six (6) categories to
consider: |
|
Revenues
- The impact a supplier has on the
customer's sales, usually by somehow increasing
the customer's output. Ex. A faster cutting
tool could increase the production rate, resulting
in more products the customer could sell.
|
|
Assets
- The supplier's ability to reduce
the customer's dollar investment in physical
possessions (such as inventory). The value
provided is the reduction in the customer's
annual possession costs for owning the asset.
Ex. Consignment would reduce the amount of
inventory the customer owns, thereby reducing
their possession cost. |
|
Processes
- The supplier's ability to reduce
the personnel cost involved in performing
specific tasks. Ex. Summary billing can reduce
the number of invoices that need to be processed,
thereby reducing the overall cost for the
customer in processing invoices. |
|
Expenditures
- Reductions in expected total annual
costs paid for goods and services. Ex. Energy
audits could identify steam leaks that result
in higher energy usage. If the supplier can
help stop the leaks it could reduce the customer's
total energy expenditure. |
|
Services
- The value of the technical expertise
that suppliers provide. Ex. If the supplier
provided training it could allow the customer
to avoid specific costs. Note: Where possible
you want to match cost savings to the above
four categories, otherwise the savings become
harder to justify. |
|
Other
- Not every cost that you impact
falls neatly into one of the above categories.
For most companies though, these categories
will account for 95% of the impact. |
