Lecture 11 Flashcards
Total Cost of Ownership
Purchasing tool, which provides the new approach for supplier selection.
Requires a purchaser to identify and measure costs beyond the standard unit price.
Building a TCO Model
Map and develop categories Determine cost elements Determine how each element is to be measured Gather data and quantify costs Develop a cost timeline Bring costs to present value Add the present values of total costs
List of Cost Elements
Purchase Price
Acquisition Costs
Usage Costs
End-of-life Costs
Opportunity Costs
Cost of the next best alternative
Absence of these costs in the analysis could lead to an entirely different decision and a wrong decision.
Factors to be Considered in TCO
Use only for evaluating larger purchases Obtain senior management buy-in Work in a team Focus on the big costs first Obtain a realistic estimate of the life cycle
International Purchasing
Represents a commercial transaction between a buyer and a supplier in different countries
Level II & III
Global Sourcing
Involves proactively integrating and coordinating common items, sourcing strategies and suppliers across worldwide purchasing and operating locations.
Level IV & V
Level I Sourcing
Domestic Purchasing
Level II Sourcing
International purchasing as needed
Level III Sourcing
International purchasing, part of strategic sourcing
Level IV Sourcing
Integration and coordination of global sourcing strategies across worldwide business units
Level V Sourcing
Integration and coordination of global sourcing strategies
With other functional groups, particularly engineering during new product development
Why source Worldwide?
Cost/price benefits Access to product/process technology Introduce competition to domestic suppliers React to buying patterns of competitors Establish a presence in a foreign market
Barriers to Global Sourcing
Lack of knowledge and skills concerning global sourcing.
Longer lead times
Different business customs, language and culture
Currency fluctuations
Resistance to change
