TCO (Total Cost of Ownership) identifies the economic lifespan of the whole enterprise. TCO can be seen as a component of cost management, but primarily acts as a benchmark for comparing the costs of certain products or services with each other.
What is cost management?
Cost management encompasses all of the methods and techniques for determining, controlling and managing the costs of an enterprise. This entails a continual process of budgeting, monitoring and adjusting in order to minimise the chance of a cost overrun. Cost management is also known as ‘Total Cost of Ownership’, ‘Should Cost, and ‘Integrated Supply Chain Focus’ and is increasingly being included in strategic procurement plans.
Managing costs often remains difficult
In practice, companies seem to have considerable difficulty in generating clear cost information and having a good idea of the profitability of products, customers and activities. A procurement professional focuses on the costs of the service or product to be purchased, and does not often look at costs throughout the whole supply chain.
What is strategic cost management?
Unlike traditional cost management, strategic cost management (SCM) is externally focused. It concentrates on the links in and around a company’s own value chain and focuses on creating competitive advantages. The priority is the strategic management of all costs.