# Supplier Total Cost of Ownership Calculator

> Source: https://netray.co/tools/supplier-total-cost-of-ownership-calculator
> Publisher: Netray (netray.co), AI and integration engineering for ERP and manufacturing systems.
> Section: Free Tools

## Short answer

Add freight, duty, poor quality, inventory carrying and ordering cost to the quoted price to see what a supplier really costs per unit and per year.

## Category

cost-finance

## Audience

- Buyer
- Purchasing manager
- Supplier quality

## Tool

**Kind:** calculator

**Currency:** $

**Inputs:**

#### Quoted unit price

**Key:** unit_price

**Type:** number

**Default:** 12.5

**Min:** 0

**Step:** 0.1

**Unit:** $/unit

**Help:** Price on the quote or PO line.

#### Annual volume

**Key:** annual_volume

**Type:** number

**Default:** 24000

**Min:** 1

**Step:** 500

**Unit:** units

#### Freight and handling per unit

**Key:** freight

**Type:** number

**Default:** 0.65

**Min:** 0

**Step:** 0.05

**Unit:** $/unit

#### Duty and tariff

**Key:** duty_pct

**Type:** number

**Default:** 5

**Min:** 0

**Max:** 100

**Step:** 0.5

**Unit:** %

**Help:** Percent of unit price.

#### Supplier defect rate

**Key:** defect_ppm

**Type:** number

**Default:** 3500

**Min:** 0

**Max:** 200000

**Step:** 100

**Unit:** PPM

#### Cost per defective unit

**Key:** cost_per_defect

**Type:** number

**Default:** 90

**Min:** 0

**Step:** 5

**Unit:** $

**Help:** Sorting, rework, scrap, line stoppage and admin for one defect.

#### Extra safety stock for this supplier

**Key:** safety_days

**Type:** number

**Default:** 30

**Min:** 0

**Max:** 365

**Step:** 1

**Unit:** days

#### Inventory carrying rate

**Key:** carry_rate

**Type:** number

**Default:** 18

**Min:** 0

**Max:** 60

**Step:** 1

**Unit:** % per year

#### Orders per year

**Key:** orders_per_year

**Type:** number

**Default:** 24

**Min:** 1

**Step:** 1

**Unit:** orders

#### Cost to process one PO and receipt

**Key:** po_cost

**Type:** number

**Default:** 60

**Min:** 0

**Step:** 5

**Unit:** $

**Outputs:**

#### Duty per unit

**Key:** duty

**Expr:** unit_price * duty_pct / 100

**Format:** currency

#### Cost of poor quality per unit

**Key:** quality

**Expr:** defect_ppm / 1000000 * cost_per_defect

**Format:** currency

**Description:** Defect rate as a fraction multiplied by the cost of one defect.

#### Extra carrying cost per unit

**Key:** carry

**Expr:** unit_price * carry_rate / 100 * safety_days / 365

**Format:** currency

#### Ordering cost per unit

**Key:** admin

**Expr:** orders_per_year * po_cost / annual_volume

**Format:** currency

#### Total cost of ownership per unit

**Key:** tco_unit

**Expr:** unit_price + freight + duty + quality + carry + admin

**Format:** currency

**Primary:** true

#### Hidden cost above quoted price

**Key:** premium

**Expr:** (tco_unit - unit_price) / unit_price * 100

**Format:** percent

**Description:** How much more the supplier costs than the quote suggests.

#### Annual total cost of ownership

**Key:** tco_year

**Expr:** tco_unit * annual_volume

**Format:** currency

**Primary:** true

**Chart:**

#### Total cost per unit vs supplier defect rate

**Type:** line

**X:** defect_ppm

**From:** 0

**To:** 40000

**Steps:** 20

**Series:**

- tco_unit

**Disclaimer:** Planning estimate. Replace the cost-per-defect and carrying-rate assumptions with figures from your own finance and quality data.

## Content

**Intro:** The quoted price is only the start of what a supplier costs. This calculator adds freight, duty, poor quality, inventory carrying and ordering cost to show total cost of ownership per unit and per year.

**Sections:**

#### How to use the calculator

**Body:** Enter the quoted price and annual volume, then the costs that sit around it. Duty is a percent of unit price. Defect rate is in parts per million, taken from your incoming inspection or supplier scorecard. Cost per defective unit should include sorting, rework, scrap, line disruption and admin time. Run the tool once per supplier option and compare the primary result, total cost per unit. The chart shows how quickly cost rises as the defect rate worsens.

#### The formula

**Body:** Total cost of ownership per unit is the sum of unit price, freight, duty, quality cost, carrying cost and ordering cost. Quality cost equals PPM divided by one million times the cost of one defect. Carrying cost equals unit price times carrying rate times safety days divided by 365. Ordering cost equals orders per year times cost per PO, divided by annual volume.

**Bullets:**

- Duty = unit price x duty percent
- Quality = PPM / 1,000,000 x cost per defect
- Carrying = price x rate x extra days / 365
- Ordering = orders x PO cost / annual volume

#### Worked example

**Body:** A part is quoted at 12.50 dollars. Freight adds 0.65 and 5 percent duty adds 0.63. At 3,500 PPM and 90 dollars per defect, quality adds about 0.32. Thirty extra safety days at 18 percent carrying adds about 0.19, and 24 orders at 60 dollars across 24,000 units adds 0.06. Total is roughly 14.35 per unit, about 15 percent above the quote. A rival priced at 12.20 but with 15,000 PPM would add 1.35 for quality alone.

#### Common mistakes

**Body:** Using cost per defect that is only the part price understates the real cost, since stoppages, sorting and customer impact dominate. Another mistake is applying a low carrying rate: warehouse, insurance, obsolescence and capital often reach 15 to 25 percent. Do not forget cost items that are zero for one supplier but large for another, such as tooling, certification or travel for audits.

**Cta:** Netray can compute this across your suppliers automatically by pulling PO prices, receipts and inspection results from your ERP, kept inside your own environment.

**Faq:**

#### What is total cost of ownership in purchasing?

**Answer:** It is the full cost of buying and using an item over its life, not just the purchase price. It includes logistics, duty, quality, inventory, administration and sometimes service or disposal.

#### How do I estimate cost per defect?

**Answer:** Add the labor to sort or rework, scrap value, line downtime, expedited freight and admin time for a typical defect, then divide by the number of defective units. Ask finance and quality to review.

#### What carrying rate should I use?

**Answer:** Many companies use 15 to 25 percent per year, covering capital, storage, insurance, handling and obsolescence. Use your finance team's figure if available.

#### Should payment terms be included?

**Answer:** They can be. Longer terms reduce your cost of capital. Convert the days difference to a carrying benefit using the same rate, and add it as a credit.

## Search terms

total cost of ownership calculator supplier, tco calculator purchasing, supplier tco calculator, true cost of a supplier, total landed cost calculator, cost of poor quality supplier, purchase price vs total cost

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