total cost ownership (TCO) and how to distinguish those costs.

This weeks material centers around total cost ownership (TCO) and how to distinguish those costs.  With this type of data, it allows a company to distinguish what cost measures are in place and how to justify those costs along the supply chain.  If you were not utilizing these methods, it makes it difficult to show that total site picture for what and where money is being spent.  When dealing with overseas supplier, finding that actual hard data can sometimes be difficult.  It is said that most companies in overseas areas have two books that they use, causing 35 percent of manufacturers to experience an increase of 25 to 50 percent for materials over a span of about three years (Trent, 2016).

Actual Data- considered to be the most reliable of the 4, but still probably missing some data

Approximations or Averages- this data is normally pulled from a company’s books and are as good as the internal folks are in capturing that data

Assumptions- probably not the best source of information comes from this category which is gathered from external sources

Absent- when dealing with absent data in a business, sometimes it is just best to leave it be, because trying to find that data can be more costly than what it is really worth

Even with using any of the 4 A’s, the data that is used may not be 100%.  I say this because we are human and make mistakes unintentionally.


Trent, Robert J.. ( © 2016). Supply chain financial management: best practices, tools, and applications for improved performance. [Books24x7 version] Available from

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The total cost system allows companies to determine all their cost variables and understand how these affect total cost. There is no set layout on how to put together the modules or what information should be included. Businesses may need to add or take away information depending on their concerns. We my unit has to make a big decision that either impacts the mission or an Airman, background information and other pertinent information must be gathered and discussed. This helps everyone feel confident and understand how the information they gathered and discussed impacted the end result.

These modules are available to companies to help them mitigate risks and have a better understanding of the information to make changes that will benefit the company capital and payback. The Four A’s will help companies develop a plan and target those areas of improvement. The first A is the all data of actual cost. This information can include unit price, transportation charges and tariffs. Pretty much any information on charges related to the business that will help determine if they are any areas for improvement. The second A is averages or approximations. Not everything a company does is set in stone, due to changes in market and supply and demand, but having an idea of information is better that working with the unknown. Having a basic idea of the cost can help work issues, but keep in mind these cost could be lower or higher. The third A is for assumptions. Assuming cost play a role in the function and capital of your business can stray focus away from the real issues. If the information is not valid or cannot help mitigate risks, do not waste time on discussing it. The last A stands for absent. This pertains to information missing from the total cost model. Again there is no set model outline; therefore, companies must come together to build ideas that will help create and total cost system that works for them.

Trent, R.J. (2016). Supply chain financial management: Best practices, tools, and applications for improved performance. J.Ross Publishing