How to find hidden costs via Total Cost of Ownership

A million dollars might be just ONE of your hidden costs. When workers walk to get gear and supplies, they aren’t truly producing revenue. How long they walk directly affects production. Said another way, the farther your inventory is from your workers, the more you’re costing yourself. Those costs accrue quickly. For example, if 300 workers spend 15 to 30 minutes a day retrieving supplies, that’s around 40,000 wasted labor hours per year. Factor in the fully burdened labor rate, and we’re talking about upwards of $1,000,000 spent walking. Hidden issues like these are everywhere. Here’s how to find them (and cost savings). What is TCO? ERP. CRM. ROI. In a sea of initialisms, TCO stands out. Understanding your Total Cost of Ownership gives you power. It opens your eyes to every cost that is attached to your work. As an example, let’s look at buying a new CNC machine. You know there’s the purchase price, but then there’s the maintenance costs, fluid handling, energy bills, etc. And if you ask AI, you’ll get some version of this: Running a CNC machine involves an estimated 25–40% of the machine's cost in total ownership expenses over its lifespan. That’s a huge hidden cost. But it doesn’t have to be hidden. How knowing your TCO helps Knowledge is power. Knowing is half the battle. Only through knowing can we improve. Take your pick from those quotes, but the lesson is always the same. If you have solid data, you will make better decisions. If you’re wondering, “How can I get better data?”, the answer is more letters. You need a TCOA. Using a Total Cost of Ownership Analysis is easy. You have Lean experts study your workflows for you. They watch the work happen and pose questions you probably never thought to ask. This analysis aims to quantify the costs that surround your supply processes. It then uses that data as a benchmark before finally presenting a set of solutions or simple process adjustments to help you achieve a more cost-effective future. Because you have experts studying your workflows and analyzing your data, you gain knowledge that helps you reduce waste (lower costs), save time (boost efficiency), and get more done (increase your organizational agility). That’s how a TCOA helps. It shows you how to take “business as usual” and turn it into “best in class.” What experts bring to the table It’s surprising, but one of the most powerful tools that people with Lean experience bring to bear on your work is fresh eyes. When you look at your facility you see memories and to-dos. When an outside expert sees your facility, they have both fresh eyes and an unbiased perspective. Every facility is unique. Yes, these experts have done tons of analyses at similar companies, but when they enter your world, they use flexible tools like process mapping, Pareto analysis, and inventory analysis to find improvements in your operation. These are the tools that will help calculate your total cost of ownership and set a baseline for solutions. During a TCOA, it’s common to uncover things like invoicing and documentation errors, overstocked inventory, and excess movement – both of workers and materials. That, plus a whole slew of other process-related waste is what you can expect as findings. But a TCOA doesn’t just identify problems; it lays out why they happen and how they can be solved. Two examples of solutions: process changes and inventory modernization. Considering we’re a quarter of the way through the 21st century, it’s shocking how many teams still use pen and paper. Right there, is the low-hanging fruit and one of the easier wins a team can have. Using technology to manage inventory and help with procurement while gathering solid data… Well, if your competitors are still using  non-digital processes, technology will give you quite the competitive edge. Plus, because inventory management devices have a small footprint, you can put them right at the point-of-use, which reduces walk time. Or improves time on tool. Depending on how you view it. To add to the list, a TCOA also often finds ways to reduce freight cost, inventory cost, and labor hours associated with sourcing and material handling. Time you can reallocate to things you’d rather have your team working on. What to expect Here’s the crazy part: A typical TCOA event typically only requires a day of time investment. Yes, there is some pre-planning, data collection, and a few meetings ahead of time, but the bulk of your time commitment comes during the on-site analysis. The big win is that it’s normal to see 20%+ savings as a result of having the TCOA and using the proposed solutions. Plus, you’ll have better visibility of product flow and common sources of waste within your supply chain. The takeaway Quick recap: If you want cost savings, better visibility over your supply chain, and to have some time back in your day, a TCOA can help. Doing an analysis of this level lets you learn how healthy your supply chain is. More importantly, you will have data that shows where you stand today and recommendations on how to improve. Everyone is looking for the highest return on investment with the lowest risk. Well, by investing a little time today, you can create a more cost-effective and resilient supply chain. Long story short, a TCOA eliminates hidden costs to deliver a great ROI.