How many times (and often rightly so) do sales people complain that all Buyers think about is price? Isn't that the first thing that comes to mind when people think about the Buying profession? Some actually ask, "So, your job is to get the lowest price on everything, right?"
Yes, and no. When a company is undergoing a huge Strategic Sourcing initiative, you can believe that upper management wants to see savings and lots of it. Really, they are focused on price.
Unfortunately, it's not that simple.
TCO (Total Cost of Ownership) is a vital concept to understand. Most people can easily relate to it by thinking of their own cars.
Price is definitely a factor when picking out a car. If two models are similar in style, function, and accessories, it's easy to assume that the price will be the determining factor. If the future car owner was told that the model priced lower by $2,000 would cost $5,000 more in maintenance and repairs over the life of the car, then there is a different dynamic at work.
In the Purchasing field, TCO can also be extended to mean total cost of the relationship with the vendor including such things as: warranty, return policy, installation, maintenance, invoicing, and payment.
It reminds me of a quote a someone once told me in a retail store years ago when I was deciding between cordless phone brands. "There's a difference between cheap and inexpensive."
Comment Preview