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| Understanding / Measuring Total Cost |
Would
you agree to purchase an investment if you couldn't
determine what it would cost you? Or if you would
never know the return you received on that investment?
Most people wouldn't. If you can't measure the impact
each of your suppliers has on your total cost, how
do you know if your investment in that supplier
was the right one? If companies are to pursue Supply
Chain Management and Strategic Alliance initiatives,
they must learn how to document and measure “total
cost”.
Total cost involves the price you pay for goods
and services, plus the impact that supplier has
on both your operating costs and your revenue
streams. This impact can be positive (value added)
or negative (poor performance), and you'll find
many of your suppliers can have as much or more
impact on your profits in these areas as they
do with the price you pay. Unless you can measure
this impact, someone, at some point, will question
the decision to utilize a specific supplier. At
that point, even if your relationship with that
supplier is the most beneficial with respect to
total cost, it may be terminated. To understand
the “return” on a supplier investment you need
to:
- Identify what opportunities exist for the
supplier to reduce your total operating costs.
- Determine where these opportunities impact
your organization.
- Measure the impact they have on your operating
profit.
- Develop the tools and means to track the
costs impacted and compare suppliers on a
total cost basis.
One method for doing this is Total Cost Indexing.
This is a method that can allow your company to
perform an apples-to-apples comparison between
suppliers based on price, performance and the
value your suppliers add (including the dollar
impact this has on your profits). It uses the
costs that each supplier impacts to create an
evaluation of which supplier offers the lowest
total cost for doing business.
Beyond total cost there is also another area where
suppliers should be evaluated: their alignment with
your firm's objectives. Most companies find that
as they work on total cost issues, many of the initiatives
undertaken also help them to achieve the objectives/goals
of their organization. Understanding what achieving
these objectives through your supplier base can
cost or save your company can help you to make the
most cost effective decisions. |
For more information on how Supply Chain Management
and the Total Cost of Ownership can help your
company, take a few minutes to review the following
opportunities: |
Training / consulting:
Joint Customer / Supplier Training (TCO)
Supply Chain Management
Understanding / Measuring
Total Cost
Supply Chain Implementation
Documenting
and Selling Value Added
Developing
a Unique Selling Proposition
Sales
Management
Manufacturer / Distributor
Relationships
System Integration
Managing for Profit |
Software:
SOURCINGSTRAT
SALESSTRAT
Train the
Trainer for Developing a Unique Selling Proposition
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Video:
Developing
a Unique Selling Proposition |
Books:
Strategic
Alliances
Team Up! Profit
Up! |
Or contact us at:
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Strategic
Business Solutions
PO Box 35895
Tulsa, OK 74153
Phone: 918-494-8085
Fax: 918-494-3718
Email: info@sbs4me.com
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