In today’s marketplace—particularly in the manufacturing sector—every dollar counts. Innovation and new technology are always pushing our industry and the related infrastructure forward as new products and systems seek to optimize results. However, while we all seek good prices on the items we need, it’s not always easy to determine whether the price was truly money well spent, leaving us to wonder “how much money did we actually spend on this purchase?” This very question is at the heart of why we must look at the importance of total cost of ownership: specifically, what it is and why it’s important.
What is Total Cost of Ownership?
Total cost of ownership (TCO) analyzes hidden costs associated with a product/system beyond the price—placing a single value on the purchase’s complete life-cycle value. This metric sums up every phase of ownership: from acquisition and operation to the “softer” costs of change management such as documentation and training. In simplest terms, TCO is the purchase price of a product or asset, plus the costs associated with operation.
There are three core factors when calculating TCO: Acquisition, Operating, and Personnel Costs. Let’s take a look at each:
Acquisition costs include the cost of equipment or property before taxes, but after any commissions, discounts, and incentives. This includes one-time peripheral equipment or upgrades necessary for installation or utilization.
Operating costs will add up any subscriptions or services needed to get the item or system up to business standard. This cost includes utility costs, operator labor, and the initial training costs.
Personnel costs include administrative staffing, support costs, and the space on the shop floor required to house the equipment and operators. Ongoing training and troubleshooting costs of maintenance.
So, it’s Not the Price?
Exactly. Total cost of ownership is designed to illustrate the contrast between the purchase price and the long-term cost of investment.
Determining the total cost of ownership with all costs considered could save you significant overhead costs.
Why Total Cost of Ownership is Important
Knowing the purchase price of an item or asset is easy, but the hidden costs associated with it is a bit harder to predict. A good TCO analysis help you understand the indirect costs such as maintenance, support, license fees that add up during the product’s lifespan. Businesses use TCO to analyze the viability of potential deals or purchases through a long-term lens. This analysis provides insights into solutions that bring positive ROIs and supplement business growth. In other words, TCO gives a more holistic view of the true expense of a purchase.
What to Consider when Calculating TCO?
There are many nuances and complexities to know when calculating TCO, including the fact that TCO is a useful metric for many sectors: while TCO is often associated with the IT industry, it is also useful for software licensing, finance, and, of course, the automotive and manufacturing industries.
How Does Breiner Help?
Breiner offers a unique selling proposition (USP) which helps our customers decrease their total cost of ownership. This means reshoring efforts to bring jobs back stateside, our USP will help make these efforts more viable. One of the major components of our USP is that we help identify and mitigate risks. After all, who wants to wait to ship a $50,000 order because you need four 25-cent parts from China? Our unique model makes us agile and flexible throughout the prototyping and development phases at a much lower TCO than any offshore solution.
For us at Breiner Innovative, we pride ourselves on meeting our customers where they are, which is why we always think about the issue of TCO on their behalf and we always seek to drive the total cost of ownership down so they can maximize their profitability and efficiency. So, if you’re a manufacturer looking to decrease your total cost of ownership, you can know that the team at Breiner are on your side. If you found this article helpful, check out our Overcoming Supply Chain Disruptions blog to learn more.