TCO analysis is based on the calculation of the overall cost of a product and service throughout its lifecycle, taking into account both direct and indirect costs. The objective of this analysis is to calculate the actual costs of purchasing a product or service from a specific supplier, beyond the basic purchase price paid to the supplier. The focus of procurement is now shifted from managing costs to generating value.

TCO analysis is at the heart of strategic procurement and is used across industries and Procurement Excellence Centers as a sophisticated calculation of the true cost of doing business with a supplier. While every company, industry, geography, and so on leverages different TCO models, the fundamentals remain consistent and are critical in determining a company’s margin, costs, and prices. At SpendEdge we aim to go beyond simply applying the fundamentals of TCO analysis, as we believe every company can generate a workable version of the TCO. Our objective and client experience go further. We focus on achieving maximum value and lowering risks by calculating the most realistic Total Cost of Ownership of a product or service over the lifetime of the product. Through our TCO analysis we aim to empower our clients with actionable information to take to the supplier during the negotiation phase, information to leverage internally for decision points such as whether to outsource or internalize operations, and estimate ROI (return on investment). Our clients know that the quoted price involves not only the cost of obtaining and using the product or service in your supply chain — it also involves other costs associated with that product that the supplier has accounted for. Instead of your company assuming or not knowing what those costs are, we will empower you with that information through the TCO analysis.

TCO in the supply chain

Understanding the true cost of acquiring a product or service is critical to the procurement solutions for a firm. However, organizations looking to generate cost savings and optimize their operations should look into the TCO of their value chains. Understanding and calculating direct and indirect costs throughout the value chain is critical, and SpendEdge can help. We have worked with SMEs on defining their TCO throughout their supply chain. Connect with us today to learn about some of the work we have done in TCO analysis for products and services across the supply chain.