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The Supply Chain Revolution: What's Inside Chapter 6? The Total Cost of Ownership
From:
Arthur Koch -- Management Consultant Arthur Koch -- Management Consultant
Miami, FL
Monday, October 7, 2024


The Supply Chain Revolution: What's Inside Chapter 6? The Total Cost of Ownership
 
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I'm thrilled that my book, "The Supply Chain Revolution: Unlocking the Sustainable Profit Chain," is available on Amazon!

Let me share with you what you'll find in Chapter 6!

 

Art Koch's Profit Chain® - Beyond the Surface: The Total Cost of Ownership

Chapter 6 delves into the intricacies of Total Cost of Ownership (TCO) and its role in supply chain management. Art Koch introduces his methodology, "Art Koch's Profit Chain," emphasizing how companies often overlook the hidden costs of ownership when making procurement decisions, which can lead to poor financial performance and inventory management. The chapter compares the hidden costs of TCO to an iceberg, with much of the true cost lying beneath the surface. By understanding and implementing comprehensive TCO models, organizations can unlock significant cost savings and improve operational efficiency.

Understanding Total Cost of Ownership (TCO)

  • TCO includes not just purchase price but transportation, storage, damage, shrinkage, and other indirect costs.
  • Traditional procurement decisions focus only on visible costs, missing 90% of the actual cost, much like an iceberg.

Impact of Poor TCO Management

  • Many companies mistakenly prioritize purchase price, leading to suboptimal inventory management and financial performance.
  • Inaccurate TCO calculations can be off by 25-40%, especially when failing to consider long-term costs like inventory carrying.

Breaking the Cycle of Antiquated Cost Models

  • The author argues that outdated cost assumptions from decades ago continue to mislead organizations.
  • To truly optimize TCO, companies need to embrace models that reflect modern supply chain realities and reduce lead times.

Real-World Example

  • A Tier 1 automotive electronics manufacturer faced inventory and quality issues due to long lead times.
  • Art's intervention cut inventory by 60%, improved on-time deliveries from 84% to 98%, and resulted in significant cost savings.

Key Takeaway

  • Operational excellence in supply chain management comes from focusing on TCO, reducing inventory, and increasing inventory velocity to drive profits and customer satisfaction.

 

 

If you have any questions or concerns about your operations and supply chain business strategy, please contact me by e-mail or at +1 (336) 260-9441. 

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Art Koch's Profit Chain®

Create dramatic improvements to inventory velocity, increased customer service, and corporate profits.

Entropy Busters®

Stop letting the process manage you! Become the champion of your game plan and achieve sustainable profits.

 

The Inventory Doctor®

Assessing the health of enterprise inventory and procurement practices. 

 

Inventory Is Evil!™

Inventory delays problem resolution. Delays cost money.

Art Koch's Profit Chain®, The Inventory Doctor®, and Entropy Busters® are the registered trademarks of Arthur Koch Management Consulting, LLC.

Turning Operational Problems into ProfitsSM  is a pending trademark of Arthur Koch Management Consulting, LLC. 

© 2021 Arthur Koch Management Consulting, LLC, all rights reserved.

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Name: Arthur Koch
Group: Arthur Koch Management Consulting Inc.
Dateline: Miami, FL United States
Direct Phone: 336-260-9441
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