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The Future of Procurement

The future of procurement is constantly pondered. One question is “what methods are top performing procurement professionals enacting to increase the value and visibility of their department”. Historically procurement professionals have set their department KPIs by the amount of cost savings obtained. One tool widely used across top tier procurement professionals is Total Cost Ownership or TCO.

TCO considers all direct and indirect costs associated with owning a product of service over time. Components of the TCO analysis include incumbency advantage, payment terms, cash discount, transition costs, and shipping costs to name a few.

Hemant Porwal, CPSM, presents a question of what comes next after a department has exhausted the TCO playbook and the volume of cost savings has hit a sharp decline? Porwal suggests that Total Cost to Serve is the future. TCS as Porwal presents, “measures costs from the first mile to the last mile and ultimately within reach of your customer in the last 3 feet”.

TCS calls for the professionals to leverage the entire value chain and engage on a new level with internal stakeholders. The TCS measurement asks once to consider issuing a whole pack of needed equipment vs one offs. This look will help leverage volume and optimize the supply chain.

Chase Jackson

Membership Chair, ISM-Dallas

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