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Part 2: A Closer Look at TCO and Best Value

Part 2: A Closer
Look
at TCO and
Best Value

Blog Post

Consider both lifecycle cost and business benefits

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Daffner_David 11-19-18

David Daffner, Vice President
Managed Services

In part one of this article, we defined three key components of Total Cost of Ownership (TCO) and several areas where unanticipated costs might be hiding. The TCO analysis is only part of the process. When considering a major purchase, always take into account if you’re achieving best value. Best value can be defined as “the trade-off between price and performance that provides the greatest overall benefit under the specified selection criteria.”

So how can best value be achieved? According to DoD ESI, an official Department of Defense Initiative, it’s when programs:

  • Acquire solutions that fit their requirements
  • Receive the best price, all factors considered
  • Secure the best terms and conditions

DoD EDI also offers a best value roadmap with a four-phased process:

  1.  Gather relevant documents and data
  2.  Analyze and evaluate to become informed
  3.  Strategize to define best price, terms and conditions for the transaction
  4.  Negotiate to arrive at the best value for the requirement.

How little you pay vs. how much you get

In the white paper Unpacking Best Value, published by the University of Tennessee Center for Executive Education and Sourcing Interests Group (SIG), procurement professionals are asked to shift their mindset from getting the best possible price to ensuring they receive maximizing value. Quite a change after years of low-bid contracts and pitting buyers against sellers where someone has to concede and “lose.”

Best value criteria differs depending on the product or service being considered for purchase. Unpacking Best Value offers a great list to use as your starting point:

  • Environmental sustainability
  • Diversity program excellence
  • Social responsibility
  • Business interface efficiency
  • Market penetration
  • Brand image
  • Speed to market
  • Market-dominant supply chain
  • Competitive market advantage
  • Technological advancement
  • Innovation
  • Cultural competence
  • Growth capability
  • Counter trade optimization
  • Cash management

Buyers always want to be sure they don’t overpay for products and services. With the move toward TCO and best value, vendors can help the negotiation process by seeking to fully understand their prospects’ requirements and demonstrating how long-term value can be achieved.

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