Total Cost of Ownership – Essential Information Your RFP Tools Should Calculate Automatically
Total Cost of Ownership (TCO) is essential information that your RFP tools should automatically provide and allow you to slice and dice quickly.
Much has been written about TCO.
This can be a challenge to nail down completely since there can be multiple operational scenarios to consider that can impact your evaluation.
Your RFP tools should provide templates that allow for in-depth analysis.
Once your base case is established, you should be able to create additional scenarios in minutes not hours or days.
Here are some basic features for you to consider in evaluating your current tool or a new tool:
- What if calculations in all cells that can support multi-level scenarios
- Lookup tables
- Delivery quantity differences
- Shipping and delivery location differences
- Multiple choice questions that modify the cost based on the answers
- Payment, warranty, lead time, financing terms and switching costs
- Questions with different paths and follow up questions depending on the answer given at each level with a cost attached to each answer
- Soft cost assumptions that can be modified based on the input
- One-button download and upload from Excel is appropriate
The goal is to give you tools that will make the upfront and backend analysis of the RFP creative and flexible.
Creating a sophisticated analysis may be the most important part of the process.
I do have several other thoughts for you.
- Suppliers should understand that you will be calculating TCO and be aware of the factors you will be considering. They may have some alternatives solutions to offer.
- You should be able to quickly modify the RFP and communicate this to all participating suppliers. They should be able to easily update their submission for only the items impacted. This happens more than one would think since the anticipated results of the calculations may be much different than anticipated.
Intangibles is another area to consider.
You may not be able to quantify the cost of some intangible factors but having a tool that will allow you to test multiple what-if scenarios will certainly help.
We have all changed suppliers based on a great bid.
Later we found out that the service the incumbent provided was better in ways we just didn’t appreciate at the time.
Hopefully, you have found the reverse to be true and that the new supplier eliminates many of the frustrations you had with the incumbent.
There is risk in any decision but sometimes the biggest risk is not deciding.
If you want to explore a purchasing or procurement topic in greater detail, I invite you to request 30-minute discovery conversation. In my experience the next step will be apparent at the end of the call. I never assume that my recommendations will be right for everyone, so don’t expect a sales pitch. You can reach me at 973-936-9672.
Organizations of all sizes are reducing costs and increasing efficiency, without changing the way they conduct business. If you would like to know how, simply give me a call or send me an email with your contact information and the best time to reach you.
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Until Next Time, I Wish You Great Success in Your Business and in Your Life