ABSTRACT
Many buyers and suppliers are easily frustrated when it comes time to negotiate a fair price for value. The key to sustainable profits is to unlock the hidden value in buyer – supplier business relationships – and then buy on best value. The good news is that there’s a growing and welcome realization in the sourcing and procurement world that lowest price is not the same as lowest cost, nor does it necessarily create long-term value. A good example of a company not doing its homework is an original equipment manufacturer that chose to move from an onshore supplier to an offshore supplier in China. The concept of Total cost of ownership (TCO) first emerged in the 1950s when experts such as Michigan State’s Bowersox (2007) challenged conventional approaches to understanding the costs associated with logistics. The concept of total landed costs has evolved and expanded outside of the logistics profession. Today most industries refer to the concept as TCO.
