Nieuws - 18 April 2023 TCO in manufacturing: "This is how I help show hidden costs"

Ruud Willems is Commercial Manager Assembly, he likes to take over production from customers. This does involve a bit of awareness, customers are often unaware of the ‘Total Cost of Ownership’ or TCO: “Using an Excel file, I can make all hidden costs visible, which is often very enlightening for the customer.”

Why do customers need to become aware of their TCO?

"We often see that buyers only look at the purchase prices of materials, sometimes not even at the work they do with them. They choose the lowest price, but compare apples to oranges. They also often buy from several suppliers, but don't realise they are wasting time and hidden costs for each supplier in ordering, booking, reconciling invoices, keeping stock, you name it."

"We have therefore developed an Excel file that includes hidden costs. Our work preparation uses it to dissect the customer's piece price when they outsource production to us, so including transport from supplier to customer, storage, rejects/repairs, you name it. So everything becomes visible."

What else are the advantages of outsourcing?

"If a customer outsources assembly to us, it can deploy the freed-up staff in other places. The personnel risk then lies with us, customers can focus on their core business. Often they still do the final assembly, they then outsource to us only the subassemblies so that the people on the line can deal with the work flow of the final product."

"For example, we have a customer who supplies agricultural machinery, they recently developed a line for their final products. Because our subassemblies and sets are ready at the line, they can focus on the final assembly. Then the output is higher, or they need fewer people. Or as one customer put it the other day, 'now we can focus on our core business.'"

What does outsourcing mean for understanding TCO?

"When transferring production to MULTIFIX, customers should of course be aware that we have to make all costs visible. Many hidden costs are literally hidden, even from the customer himself. With one customer, their suppliers' prices turned out to be ex-factory prices, so logistics costs had to be added. We have to take over the costs properly, nobody benefits if we make a loss on every project."

"Almost all buyers who ask us for quotations only compare purchase prices, not TCO. We call that procurement 1.0. We try to convince our customers of procurement 2.0, then they see the advantages of outsourcing and equal cooperation. Of course, customers get a good product for the best price, but calculated on a long-term basis. They are then aware or at least understand the hidden costs."

That also means a different relationship with the customer?

"Before, the relationship with the customer was not equal, you were 'opposite' each other. Now we stand 'next to' each other, we become part of the customer. You pull together, the trust and partnership grows, which is really procurement 2.0. Their problems are your problems, but also vice versa. If a customer suddenly needs a lot and we therefore need to move up quickly, we often get to use their network.

"I spoke to a buyer the other day, he himself cleverly used the two-bin system for purchasing fasteners. In the long run, this is best given the TCO, but in the short term it seems more expensive. He was therefore criticised from headquarters in France, where they were still buying full boxes. He pointed out their hidden costs such as repacking on the line, when they understood that, the criticism disappeared. A great example of awareness of TCO, I like to help buyers with that."