Q What is total cost of ownership and how is it calculated?
A When comparing product options to purchase, it is important to consider the item’s total cost of ownership (TCO). TCO takes into account the upfront cost of an asset plus the operational cost for the duration that you own that product. Financially, the item with the lower TCO will be the better value in the long run, but one must take into account several factors.
As you plan your purchases, evaluate the TCO by considering these five key criteria:
- Brand. Well-trusted, name brand items will most likely last the longest and be made with the highest quality materials.
- Durability. Smallwares products should be able to withstand harsh commercial washing and handling without getting damaged.
- Warranty. Best in class warranties exist from 90 days to lifetime replacement. Evaluate the brand and manufacturer, but again invest in higher quality products.
- Quality. Invest in the most appropriate quality tier that meets the product’s purpose. Stay clear of cheap products to “get by.”
- Customer Expectations. Setting a table in a high-end restaurant with less than 18/10 flatware or an ensemble of mix and match brands may be perceived unfavorably to members or guests who are paying a premium for an exceptional meal.
Products that use energy, like lighting and kitchen equipment also illustrate the importance of calculating TCO. Replacing halogen bulbs with LED bulbs may cost more up front, but can reduce energy usage over time, often giving LEDs a lower TCO. The same can be said for kitchen equipment as new models can pay for themselves in as little as two years.
Ultimately, you want to purchase products that will do the intended job and maintain their longevity with proper care. Investing in the best quality products upfront should help extend the life of your assets and prevent the need for frequent and costly replacements. It is worth the time and money to properly evaluate your capital investment upfront to successfully reduce your TCO.
Thomas Bruce is director of rooms operations and food & beverage supplies for Avendra’s Strategic Contracting team. Avendra is North America’s leading procurement services provider for the hospitality industry, including many of the finest clubs in the country. For more information please visit www.avendra.com or email [email protected].