Supplier Total Cost of Ownership Calculator
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.
Your numbers
Price on the quote or PO line.
Percent of unit price.
Sorting, rework, scrap, line stoppage and admin for one defect.
Your results
Planning estimate. Replace the cost-per-defect and carrying-rate assumptions with figures from your own finance and quality data.
Total cost per unit vs supplier defect rate
Sweeps Supplier defect rate from 0 to 40000, holding your other inputs fixed.
Calculate TCO from live ERP data
An optional review of automating supplier total cost of ownership from your ERP.
Optional. The tool and every export work without this. No spam.
How to use the calculator
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
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.
- 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
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
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.
Frequently Asked Questions
What is total cost of ownership in purchasing?
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?
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?
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?
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.
Netray can compute this across your suppliers automatically by pulling PO prices, receipts and inspection results from your ERP, kept inside your own environment.
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