Unit price wins spreadsheets. Total cost wins stakeholder support.
Procurement decisions are often judged first by unit price. It is the most visible metric, the easiest to benchmark, and the quickest way to demonstrate savings. Yet in complex operating environments, unit price is rarely the determinant of true cost or business impact.
This is where Total Cost of Ownership (TCO) becomes essential. Not as a theoretical construct, but as a practical lens for making better decisions, earning stakeholder trust, and delivering sustainable value.
The Hidden Cost of “Lowest Price Wins”
Early in my career, we sourced corrugated boxes that appeared to be a clear win on price. On paper, the numbers were compelling. Unit cost was meaningfully lower than alternatives, and the sourcing decision was easy to justify.
Operationally, the story was very different.
The boxes contributed to line delays and changeover challenges, which directly impacted Overall Equipment Effectiveness (OEE). Quality performance was inconsistent, with Defective Parts Per Million (DPPM) trending well below expectations. Service reliability also suffered, as On Time In Full (OTIF) delivery performance slipped under our 95 percent standard.
Each of these issues, in isolation, seemed manageable. Collectively, they created real cost. Downtime increased. Rework became routine. Production schedules tightened. The business absorbed the impact, but procurement-owned savings began to quietly evaporate.
Logistics: Where TCO Often Gets Missed
The cost story did not stop at the production line.
Corrugated packaging is largely air-fluted, meaning it fills a truck long before it reaches weight limits. In our case, the selected supplier was shipping boxes across multiple states. Trucks were cubing out quickly, driving disproportionately high freight costs that were invisible in a unit price comparison.
What looked like a low-cost supplier was, in reality, generating excess transportation spend simply due to distance and packaging physics. The freight inefficiency alone erased a meaningful portion of the initial price advantage.
This is a common blind spot. When procurement evaluates price without considering how goods move, hidden logistics costs accumulate quietly and consistently.
Reframing the Decision Through TCO
When we revisited the sourcing decision using a Total Cost of Ownership lens, the conclusion changed.
We expanded the analysis to include:
OEE losses and downtime
Quality impact driven by DPPM performance
Service failures tied to OTIF shortfalls
Freight inefficiencies driven by cube utilization and distance
With these factors included, the lowest unit price option was no longer the lowest cost option.
We ultimately selected a supplier with a higher unit price but materially stronger operational performance and closer proximity to our facilities. The outcome was clear and immediate. Total cost declined. Throughput improved. Quality stabilized. Most importantly, stakeholder support increased, because the decision aligned with how the business actually operated.
Why TCO Drives Credibility, Not Just Savings
One of the most underappreciated benefits of TCO is its effect on stakeholder relationships.
When procurement frames decisions purely around price, it often creates tension with operations, manufacturing, or supply chain teams who feel the downstream impact. When procurement frames decisions around total value, those same stakeholders become partners.
TCO enables better conversations. It makes tradeoffs explicit. It shifts procurement from a negotiating function to a decision-making function that reflects operational reality.
Making TCO Part of How Procurement Measures Success
Applying TCO is not always easy at first. It requires better data, closer cross-functional collaboration, and a willingness to challenge traditional savings definitions. The first few assignments often take more effort and more explanation.
Over time, it becomes instinctive.
The most effective procurement teams embed TCO into how they set savings targets and measure performance. Not every dollar of value shows up as price reduction, but that does not make it any less real. When savings metrics reflect total value delivered, procurement gains credibility and alignment rather than resistance.
The Leadership Shift
At a leadership level, TCO is less about models and more about mindset.
Organizations that consistently look beyond unit price tend to make better long-term decisions, experience fewer operational surprises, and extract more value from their supplier relationships. Procurement’s role is not to complicate decisions, but to elevate them.
When procurement moves beyond unit price, stakeholder support follows. And when that happens, Total Cost of Ownership stops being an analysis exercise and becomes a competitive advantage.
