No Bargains

BargainsBuyer’s Remorse

Buyers everywhere face pressure to deliver cost savings.  The problem is that too many eyes become focused on stated vendor cost rather than Total Cost of Ownership (TCO or “Tee-Co”).   Looking at an invoiced cost only tells part of the story. TCO brings clarity of true comparative economics.  The concept is one of leveling the playing field between vendors and vendor origins.  It is especially applicable to off-shore and low-cost country supply chain options.   It works for goods and services alike.

When is a bargain no longer really a bargain?   The short answers lie in typical buyer’s remorse.  It’s when the product or service ends up costing a lot more than we than we thought it would , or when it turns out that it really would have been cheaper to buy it elsewhere.   The incremental costs remain hidden or otherwise disaggregated.

Understanding True Costs with TCO

Maybe we should have thought things through a bit more, kicked a few more tires, or looked harder for hidden costs before pulling the trigger. As individual consumers, most of us know this feeling all too well, and it’s really no different with larger-scale business purchases.  Without discipline and the proper tools, human nature predisposes us to make these same mistakes- only this time with our employers’ money.   With higher- volume spends, misinformed buying becomes a higher stakes poker game where no one wants to make the fool’s bet.

The TCO approach offers a way to put alternatives on the same basis by explicitly quantifying costs that were previously hidden or are disaggregated within typical accounting systems.  All too often, what we see on the invoice fails to tell the true story.  TCO unmasks the Other Relevant Costs of Ownership (ORCO) and allows for greater visibility of inevitable trade-offs.

TCO = Stated Vendor Cost + Other Relevant Costs of Ownership

TCO for Product: TCO for Service (Engineering or IT):
Stated Vendor Cost per unit Stated Vendor Cost per unit
+ Freight  + Extra Hours at Stated   Vendor Cost per unit
+ Customs & Duties + Internal Management Time
+ Tooling + Internal Analysis & Design Time
+ Product Lead Time + Maintenance & Ongoing Support
+ Net Working Capital + Net Working Capital
= Total Cost of Ownership = Total Cost of Ownership
TCO for Products

Usually cheaper labor is the factor that allows a perceived low-cost country (PLCC) vendor to get our attention with a low stated vendor cost.  We soon discover that it will cost a small fortune to ship that product at least half way around the world.  We also will encounter the added cost of getting the goods out of port on a timely basis. Ocean freight is cheaper than air but can add lead time challenges, which in turn greatly hinder our ability to respond to customer-driven demand changes.   If we choose to play a just-in-time game and use air freight, we can expect to pay significant premiums.  Tooling costs can also differ greatly, and working capital trade-offs stemming from minimum order quantities (MOQ ‘s) and terms differences also factor into the equation.  Taking a few minutes to understand the ORCO can pretty quickly turn our initial stated vendor cost comparisons upside down.

TCO for Services

The TCO service example is best viewed in the cases of Engineering or IT outsourcing to PLCC vendors.  Similar to our product example, the allure is in the quoted low cost per hour.  It appears to the buyer that the same resource costs a lot less.  The key here is to make sure that the resources truly are the same and can perform at the same level.   If the resources differ in capability and/or speed, we can expect to foot the bill for an excess of hours to complete the project as well as some potentially significant internal management costs expended to keep things on track.  Additionally, supplemental analysis and design support may be required because the PLCC resources lack specific knowledge of our businesses and applications.   Resulting design oversights can lead to higher ongoing maintenance and technical support costs.   With ORCA quantified, TCO shows us a view that may stand in stark contrast to our initial stated vendor cost comparison.

Toward a Better Tomorrow

TCO is the type of value-added cost analysis technique that screams common sense.  Part of the reason that this sense is not as common as it should be is that compensation systems continue to reward the appearance of a bargain. As long as turning short-term tricks still has handsome reward, things are not likely to change quickly.  It’s going to take the right incentives to make the right things happen.  If more people including some in Washington DC do the math, maybe a few much-needed jobs will return to the US.

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From Outside the Lens (Looking In)

From Outside the Lens (Looking In)

By Randy Albracht & Thomas W. Smith

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Regaining Focus

Can we agree that media portrayals of Navy SEALs have grown increasingly sensationalized? Drawn into the multi-media mania, our vision temporarily blurs.  Getting lost in the glitz and glamour is the easy part.  A greater challenge lies in retraining the lens to capture the real stories which are ultimately and undeniably about people. Clearer vision and sharpened focus allow us to see the obvious. SEAL teams work because of people.  In the end, you need to have a few good people in place to support all that leadership, teamwork, training, and valor stuff that’s happening.

SEALs are called upon to excel in extraordinary ways.  Ironically, some of their simplest and even almost unremarkable words and deeds are what impress this outside observer the most. You see, in many cases, these words and deeds would in fact prove to be unremarkable – if everyone in the world did them.  But not everyone does.  That’s the catch. For some reason, some simple but respectful things are not a common part of everyday business culture and are far from being hallmarks of the greater worlds within which we live.  So this becomes our focus here today – as I help Randy tell another story.

Closer Look

Randy Albracht

Randy Albracht

As readers may recall from the prior issue of The Blast, Randy and I penned an article that mentioned among others his teammate Ryan McCombie.  Very recently, Randy shared with me that he received an email from Ryan thanking him for the article and citing its positive impact.  “That’s what it’s all about”, says Randy, brandishing his trademark grin and jovial laugh.  “Life-long friends.  It comes full circle.”  I could see that it meant the world to Randy for him to know that he had paid fitting tribute to his teammate and had succeeded in honoring the memory of Ryan’s son Brandan.  Seeing the pride in Randy’s reaction sparks a journalistic curiosity to dig deeper.

“Well, I first met Ryan when we were both part of a Joint Special Operations training exercise conducted out of Hurlburt, FLA (USAF Base).  Must have been about 1980 or so.”, Randy says. Most joint exercises were funded primarily by the Army in those days.  The Teams didn’t have that kind of budget, minimal budget at best, and what a lot of guys today don’t realize is that back then there was this whole East Coast/West Coast thing going on between the Teams.  The Teams as a whole weren’t as unified or together like they are today.  The SEALs on each coast were separate……a definite rivalry existed.  The East Coast had their own bar, and the West Coast had keggers on the beach most every Friday afternoon. Morale was high in the Post-Nam era in the Teams in the more simple days.“

Zeroing In

scan30001“Ryan took me under his wing, and it was during a joint exercise where he mentored me, particularly on my position on the Ops Staff (J-3). I had the operator part down having been both a West Coast UDT and SEAL Platoon Commander, but this was my initial exposure to the SOF Joint world. SEALs supported the exercise from both coasts. Thrown into a new world again, but fortunate for me, I had my initial East Coast Sea Daddy looking out for me.”

Albracht continues, “Here’s a guy, more senior than I am, taking the time to reach across the aisle, so to speak, and bring me along.  He welcomes me into the East Coast SEAL scene. A gesture often taken but rarely talked about particularly in those days.  You know, as I think back, it’s all about the mentoring.  Mentoring gives you something or someone to always look up to and sets the bar higher. That’s how people and teams get better As a Junior Officer, I was fortunate to be mentored by Officers and Enlisted alike.”

“Eventually, we crossed paths again at the Army War College in Carlisle (PA) around 2005 or so.”, explains Randy.  “Ryan served as the Navy’s senior officer there, and I enrolled, maybe even as the first SEAL ever, not really sure, in the correspondence course they offered.  I know Ryan was the one who was responsible for me being enrolled.  Unfortunately, being in the Reserves, I wasn’t able to maintain what became two jobs at once.”

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So, we see a little bit more about what’s behind the curtain in the long-standing relationships and life-long friendships that are characteristic of the Teams.  They really do come full circle, which explains the current day heartfelt reactions that are so striking.  Those engaged in post-SEAL pursuits, years and decades later, consistently refer to the members of their brotherhood as teammates.  They take the time to attend a teammate’s or colleague’s retirement ceremony or change of command, or send a congratulatory note if they can’t be there…and of course the never-failing thank you note back to the teammate who took the time to care.  Suggest all this as common courtesy in the general business world today and you would be laughed right out of the executive offices and lose preferred parking status.  That’s a shame, but it’s true.  It’s as true as its aforementioned SEAL counterpoint, which makes simple and easy all the more impressive.

Under the radar stories like these drive home with quiet emphasis that it really is not at all about the glitz, glamour, and media portrayals.  It’s about the people through whom the seemingly unremarkable becomes remarkable.  Guys like Ryan, Randy, and others.  By the way, Randy has a story has a story or two left to tell, so stay tuned.

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