The great idea

About a year ago, I had the greatest idea in the world: change cell phone companies. That’s right. Immediately upon inspiration and without delay, I marched right in to the nearest branch of my newly-desired provider and spoke with a bright young salesperson who was happy to tell me about the many coverage features his company offered – features I had never considered previously, and now wondered how I ever lived without. Each feature’s cost seemed negligible. Mere dollars added to the (insanely large) monthly bill. In addition to gaining access to these now indispensable new features, I would even get a refund on my old phone! In the form of a gift card…that would merely be the balance of what was due to me after initial switching costs were deducted…that would require that I scan and email multiple receipts that were more than two feet long…that would arrive up to six weeks after purchase…

That’s ok, because moving to a premium cell phone company would surely save me money in the end, right? I mean, that’s what the salesman told me. So it must be true. Right? (crickets)

Now, halfway through a two-year contract, I see that I failed to consider the larger picture…the total cost of “ownership.” What I thought would at first be profitable for me was only profitable for the new phone company. And my monthly bill went up instead of down. But how could this be? I spent literal hours in that store. I made several trips. Even showed up late to dinner one evening because I was busy negotiating with the salesman. Despite all of this, my decision was not entirely informed. And so, instead of spending my hard-earned money on the multi-season compilation of Archer on Blu-ray like I should have, I am now shelling out more than ever, each month, to my new phone carrier.

Total Cost of Ownership in fleet management

This too shall pass, and ultimately, the pain is not unbearable (this time). But what if the consequences of uninformed decisions such as the ones that led to my cell phone service provider debacle were multiplied across, say, a fleet of delivery trucks? For a contract term of five years? Expenses would increase exponentially, and my boss might end up calling me something other than “Late for Dinner.” This is why determining total cost of ownership (TCO) is so important, especially when it comes to fleet management.

Failing to understand TCO can lead to serious hiccups in a company’s larger supply chain management picture. LogisticsBureau.com attributes poorly defined and managed customer service policies and the retention of slow and obsolete stock to misunderstandings involving TCO. 1

Before you jump in feet-first to a new cellphone agreement fleet asset, take the time to consider the obvious and the not-so-obvious costs involved in taking on a new truck, warehouse, transportation, storage facility, or other fleet-related investment. According to LogisticsBureau.com, a few items to consider include:

  • Promotional discounts
  • Efficient order terms
  • Sales organization costs
  • Marketing costs
  • Ordering and cash collection
  • Storage
  • Picking and packing
  • Outbound transportation
  • Customer-specific services
  • Returns management 1

A primary benefit of carefully scrutinizing TCO is that it allows companies to identify actual cost drivers. This enables companies to be more precise in their budgeting and planning. The downside? An overly zealous approach to TCO analysis that fails to consider the practical aspects of asset ownership could lead to a potential rabbit trail of obscure costs that ultimately results in decision paralysis.

A better way to determine total cost of ownership

The key to efficient analysis rests in the tool that is being used to determine TCO. Depending on the size of your business (and the strength of your stomach), your tool of choice could be as simple as a shared spreadsheet. Fleet managers may prefer an even more robust solution that digitizes transactions and documents – one that is scalable based on the size and growth of your business and that provides dynamic record access and true rules-based automated archiving.

With a business intelligence app like TS HyperDocs, you will know exactly what is required on each delivery to remain profitable and to facilitate your company’s continued asset acquisitions. Cold hard data will inform your decisions on how much to charge, which allows you to determine the total cost of ownership for that truck (x20) that contains all of the bells and whistles at a price that at first seems “negligible.”

Want to read more about business intelligence?

1 – Rob O’Byrne, Cost To Serve – A Smarter Way to Improved Supply Chain Profitability (Logistics Bureau, 2015), http://www.logisticsbureau.com/cost-to-serve-a-smarter-way-to-improved-supply-chain-profitability/.

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