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To reduce your costs, understand them: master the TCO approach

Although the immediate damage of this pandemic on businesses has been well documented thus far, the long-lasting impacts are still very difficult to assess.

The direct costs of raw materials and services have increased due to supply chain throttling and other pandemic countermeasures, which have undoubtedly been closely monitored through the typical procurement processes. However, it is much more difficult to amortize the cost impacts to the overall business structure. Outside of profit margins, there are many indirect items to consider, including the amortization of sales, IT & ERP systems, purchasing activities, R&D, and MRO. If there is no regular monitoring of these indirect costs in your company (they may be calculated on an annual or bi-annual basis with the application of a flat overhead percentage) here is where you should start.

Build a TCO model – uncover hidden costs to drive decision-making!

To fully recover and return to profitability, industrial companies must take control of all of their costs as quickly as possible. The calculation behind Total Cost of Ownership lies in distributing all costs on products or services sold to measure net margin.

The first step in fully understanding TCO lies in evaluating and mapping product life cycles, with meticulous and continuous tracking of both direct and indirect costs. While direct costs are much more manageable, it can be a daunting task to understand and correctly monitor all sources of indirect spending.

Optimize it

Once the TCO is fully understood and monitored, adjustments for optimization need to be considered through projects focused on a product line and/or departmental basis. The needs of the company and its customers are at the heart of these initiatives:

  • Design-to-Cost
  • Modular Design
  • Complexity Rationalization
  • IT Cost Reduction
  • Process Improvement

With the technical engineering expertise and TCO experience across a multitude of management consulting projects & industries, IAC Partners is the ideal resource to use for TCO construction up through optimization. We possess the proficiency and experience to perform TCO improvement on all industrial products or services as demonstrated through our successful project history.

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