Supplier Total Cost of Ownership Comparison Calculator
The cheapest quote on the RFQ is rarely the cheapest part by the time it is on your shelf and through your line. This tool compares two suppliers on landed price plus the expected cost of rejects, and tells you the reject rate that flips the decision.
Your numbers
Incumbent or domestic quote.
Challenger or offshore quote.
Inbound freight, duty, brokerage and tooling amortization as a percent of price.
Material, handling, sorting, line disruption and replacement freight per reject.
Your results
Planning model. Add inventory carrying cost for longer lead times and currency risk separately if they are material to your decision.
Annual TCO vs Supplier B reject rate
Sweeps Supplier B expected reject rate from 0 to 10, holding your other inputs fixed.
Link TCO to live ERP data
Optional: an expert review of how to feed landed cost, receipts and rejects from your ERP into sourcing decisions.
Optional. The tool and every export work without this. No spam.
How to use it
Enter annual volume and the two unit prices. Express freight, duty, brokerage and tooling amortization as a percent of price for each supplier, using actual quotes from your forwarder or customs broker. Enter an expected reject rate for each, using history for the incumbent and a prudent assumption or first-article data for the challenger. The cost per rejected unit should include everything a reject triggers, not just the lost part.
- Use landed prices, not ex-works prices
- Use a conservative reject rate for a new supplier
- Include replacement air freight in cost per reject
- Run the chart before trusting a single point estimate
The formula
Landed unit price equals quoted price times one plus the adder percentage. Annual TCO equals volume times landed price plus volume times reject rate times the full cost per reject. The break-even reject rate for Supplier B is the rate at which its TCO equals Supplier A's: A's TCO minus B's landed purchase spend, divided by volume times cost per reject. It is a quick way to see how much quality slippage a price advantage can absorb.
Reading the default case
In the default example, Supplier B quotes about 12 percent lower, but duty and freight narrow the gap, and a 2.5 percent reject rate at $22 per reject takes much of what remains. The chart shows the two TCO lines crossing at the break-even reject rate. If you believe the challenger can hold a rate below that point and you can enforce it with a quality agreement, the move pays. If not, the quote is a false saving.
Common mistakes
Do not ignore working capital: a longer sea freight lead time means more inventory and safety stock, which this model leaves out on purpose so the comparison stays transparent. Do not use the reject rate from a sample build for a production forecast. Finally, keep the same volume and specification for both suppliers, or the comparison is not like for like. Document the assumptions with the sourcing decision.
Frequently Asked Questions
What is total cost of ownership in purchasing?
It is the full cost of acquiring and using a part: purchase price, freight, duty, quality failures, inventory, and support. Piece price is only one component, and often not the largest when the supplier is far away or less capable.
Where do I get the reject rate for a new supplier?
Use first-article and pilot lot results, the supplier's process capability data, and references. Then add a safety margin. A new supplier usually performs worse in the first year, so a conservative assumption is more honest.
Can the break-even be negative?
Yes. If Supplier B's landed price already exceeds Supplier A's total cost, no reject rate makes B cheaper and the result shows zero or a negative number. Treat that as a signal that A wins on cost under these inputs.
Does this include currency risk?
No. If you buy in a foreign currency, run the calculator at your expected rate and again at a stressed rate, then compare the two results. A hedging cost can also be added to the adder percentage.
Netray can connect this comparison to your ERP purchase history and receiving data so the inputs update from real transactions rather than estimates.
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