Tco Vs Weighted Point Method

Weighted point method TCO method

Advantages - includes various factors and weigh based on the current firm’s needs

- flexible because companies can change weights placed on measures overtime

- moderate implementation costs

- combines both qualitative and quantitative methods

- considers a broader range of factors covering the whole life cycle costs

- reflects the “actual” cost of purchasing

- objective cost measures

- provides analysis of how the firm is to cost fluctuation

 better sourcing policies

- helps firms realize costs that can be improved/saved

 increase competitiveness

Disadvantages - measures fewer evaluation factors determining the “actual” transaction costs

- still subject to subjectivity

- difficult in practice because the value of one performance measure is relative to another

- qualitative evaluation is difficult

- some measures cannot be taken into account (business risk, opportunity costs, success chance in negotiation

- shows little implications of how supplier choice may affect the business performance

- complex and time-consuming

- difficult to accurately define, categorize, and track all costs

- changes in internal/external factors may have immediate impact but can’t be calculated right away

- Uncertain data availability

- requires cooperation and inputs from all department

- some measures cannot be taken into account (business risk, opportunity costs, success chance in negotiation)

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