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Supplier Total Cost of Ownership Comparison Worksheet

The cheapest unit price is rarely the cheapest supplier. This worksheet puts price, freight, duty, quality losses, inventory carrying cost and tooling on one line per supplier, so you can compare total cost per unit and per year, then export the table to Excel.

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Supplier	Unit price	Freight per unit	Duty %	Reject rate %	Cost per reject	Lead time (days)	Carrying cost % per year	Tooling per unit	Annual quantity	TCO per unit	TCO per year
										$16	$189,364
										$15	$180,157
										$14	$171,200

Lowest TCO per unit

$14

Highest TCO per unit

$16

Spread between best and worst TCO

10.6%

How much more the most expensive supplier costs than the cheapest on a total cost basis.

Carrying cost is applied to unit price over the lead time as a simple proxy for pipeline and safety inventory. Add rows for each supplier and edit the example numbers. Add quality, delivery or risk adjustments in Excel if your policy uses them.

Build a live TCO view from ERP history

Optional: a short review of how receipts, rejects and lead times could feed this comparison automatically.

Optional. The tool and every export work without this. No spam.

How to use the TCO worksheet

Add one row for each supplier you are comparing. Enter the quoted unit price, freight per unit, import duty percent, expected reject rate, the cost each reject causes, the lead time in days, your annual inventory carrying cost percentage, tooling cost spread per unit, and annual volume. The worksheet calculates total cost per unit and per year for every row and shows the spread between the best and worst. Use the same volume and the same assumptions for every supplier so only real differences move the result.

The cost elements and why they matter

Price is the visible part. Freight and duty move the landed cost. Quality loss is the reject rate times the full cost of dealing with a reject, which is usually many times the part price once you count handling, rework, line stoppage and expediting. Lead time drives inventory: a longer pipeline ties up cash and needs more safety stock. Tooling and development are one-time costs that are easy to ignore if you only look at piece price. Together these explain why a supplier that is 25 percent cheaper on paper can cost more in practice.

Landed cost: price plus freight plus duty
Quality cost: reject rate x cost per reject
Inventory cost: price x carrying % x lead time / 365
Tooling: one-time cost spread per unit

Reading the result

Look first at the ranking by TCO per unit, then at the spread. If the spread is small, other factors such as capacity, risk, financial health and relationship should decide. If the cheapest unit price becomes the most expensive TCO, the worksheet has done its job. Test sensitivity by changing the reject rate and lead time, because those are usually the least certain inputs. If the winner changes when a reasonable input moves, treat the decision as close and look for more evidence, such as a trial order.

Common mistakes

The biggest mistake is leaving out the cost of a quality failure, which makes offshore sources look better than they are. The next is using different volumes or different Incoterms across suppliers. Do not mix delivered and ex works prices without adding freight. Do not assume a past reject rate for a new supplier; use a conservative estimate until you have data. Finally, do not ignore currency risk, payment terms and supplier concentration. This worksheet covers cost; risk and capacity need a separate review.

Frequently Asked Questions

What is total cost of ownership in procurement?

Total cost of ownership is the full cost of buying and using a part or service, including price, freight, duty, quality losses, inventory carrying cost, tooling, and administrative effort. It shows the real cost of a supplier relationship, not only the quoted unit price.

How do I estimate cost per reject?

Add the part cost, inspection and sorting time, rework or scrap labor, line disruption, expediting and replacement freight. For parts that stop an assembly line, the cost per reject can be many times the unit price. Use finance and quality data where you can.

What carrying cost percentage should I use?

Many manufacturers use 15 to 30 percent per year, covering cost of capital, storage, insurance, handling and obsolescence. Ask your finance team for the figure they use for inventory decisions and apply it consistently across suppliers.

Should TCO be the only criterion for choosing a supplier?

No. TCO covers cost, but capacity, technical capability, financial stability, delivery performance, compliance and risk also matter. Use TCO alongside a weighted scorecard so that price does not outweigh factors that could stop your production.

If supplier quality, receipts and prices sit in your ERP, Netray can help you build a live TCO view that uses real reject and lead time history.

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