Retailers should consider Lifecycle Costing when calculating savings on new business awards.

July 7th, 2010

There is generally more involved than switching cost when considering new suppliers, products and services at the conclusion of an e-negotiation event such as a reverse auction.

It’s true that a reverse auction can create substantial low quote savings. However much needs to be considered when tracking realized savings once the event has concluded and the award of business is ready to be made.

Lifecycle Costing is a procurement technique which considers operating, maintenance, acquisition price, and other costs of ownership in the award of contracts to ensure that the items or services to be acquired will result in the lowest total cost of ownership during the time the item’s function is required.

If a category is truly returning event savings, it should be able to be tracked from original delivery to contract termination on a companies detailed P&L. The trick is that many of the associated costs go to different departments on the P&L. If you don’t know which ones, your pre event discovery was not complete and the odds of getting the actual savings reported are at significant risk.

We look forward to and appreciate your comments.

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