What do superheroes and OEM buyers have in common? They are faced with challenges every day that require both strategic planning and quick thinking. While buyers may not wear capes, they do battle competitors, supply chain disruptions, tight project timelines, and many other obstacles. But some buyers are better at “saving the day” than others.
Put simply, the word “super” means “more than ordinary.” What is it that separates ordinary buyers from strategic sourcing superheroes? They are zeroed in on one little acronym that has the potential to make a big impact at their organization: TCO.
What is TCO?
TCO, or Total Cost of Ownership, measures the total cost of products or services over their entire lifecycle. The mathematical formula for calculating TCO is this:
Purchase price + Operation costs (inclusive of admin costs) = TCO
It comprises both direct and indirect costs, such as:
Unit Cost
Administrative costs
Packaging costs
Freight costs
Customs duties
Cost of poor quality & returns
Cost of delivery delays
Inventory carrying costs
Procurement department operating costs
Payment terms
TCO is critical for determining long-term viability of deals or purchases. By analyzing TCO, procurement professionals start to understand how their buying patterns deliver return on investment (ROI) and contribute to growth of their organization—knowledge that can transform them from ordinary buyers to super-buyers.
All superheroes need a sidekick
Analyzing TCO may seem like a daunting task, but like superheroes, OEM buyers aren’t on their own—they can get help from strategic partners. A strategic partnership is an arrangement between two companies that agree to support one another in their mission. Strategic partnerships are not one sided. They are mutually beneficial and focused on creating joint value through shared ambitions. When evaluating suppliers, buyers should look for strategic partners with the following characteristics:
Results oriented: Can they provide solutions to help overcome current obstacles and achieve your goals?
Reliable: Will they be there when you call on them to provide a steady hand, even in unstable times?
Proactive & nimble: Do they anticipate market movements or potential issues and shift strategies accordingly? Can they move quickly when objectives or deadlines change?
Friendly & empathetic: You must enjoy working with your strategic partner. Do they provide a personalized experience and try to see things from your point of view?
Financially stable: Can they demonstrate liquidity, purchasing power, and profitability?
When it comes to driving down TCO, strategic fastener distribution partners can play an essential role. Here are some examples:
Offering substitutes to drive down unit cost.
Creating sourcing efficiencies that help you reduce procurement costs.
Analyzing your current inventory and historical data to help you buy better.
Advising on when to use imported fasteners vs. domestically produced products.
Consolidating transportation to ensure you have the most cost-effective shipping rates.
Reducing number of touchpoints related to admin, processing, and accounting.
Delivering JIT to minimize inventory & storage costs.
As you commit to more volume and deeper relationships with your strategic partners, you’ll get more in return as they continue to find ways to create efficiency and drive down costs.
Find your strategic partner and save the day
To identify strategic partners, buyers should evaluate their primary and secondary vendors in each procurement category. In addition to comparing purchase price, think about how each partnership impacts your operational costs. If your primary vendors are not helping drive down these costs for your organization, it might be time to reassess your procurement strategy.
Once you’ve narrowed down these vendors, think about how you can foster stronger relationships with them. Standing quarterly meetings can be beneficial for keeping lines of communication open. What are the direct and indirect benefits you can gain?
The total cost of doing business is more than just the number on an invoice. The right distributor will understand your goals and work as a true partner to help you drive down cost. Ready to take your sourcing power to the next level? Contact us to discuss how we can help drive down TCO.