In the ever-evolving landscape of procurement, there is shift underway with focus on not just the upfront cost of a product or service, but its total cost over its entire lifespan. This approach commonly known as whole life costing (WLC), is changing the way organisations make procurement decisions, offering a more comprehensive and insightful perspective.

Whole life costing (WLC) is a methodology that goes beyond the immediate financial outlay of acquiring goods or services. It encompasses a broader spectrum of costs associated with a product or service throughout its entire lifecycle, providing a holistic view of the financial impact of a procurement decision. As Chris Voss aptly puts it, “Successful negotiation is not about getting to ‘yes’; it’s about mastering ‘no’ and understanding what the path to an agreement is.” This resonates deeply with the essence of WLC, emphasising the importance of understanding all facets of a procurement decision before reaching an agreement.

By adopting a WLC approach, organisations gain a deeper understanding of the true cost of ownership. WLC also enables decision-makers to evaluate the total cost of a product or service over its lifespan, considering factors such as reliability, durability, energy efficiency and environmental impact.

Whole life costing has gained prominence as organisations seek to optimise their procurement processes and maximise the value of their investments. By integrating WLC into procurement strategies, businesses can identify cost-saving opportunities, mitigate risks, and enhance sustainability efforts.

Novo-K is a leading procurement consultancy business renowned for its innovative approach to strategic sourcing and is at the forefront of embracing WLC. Their expertise lies in leveraging WLC to drive efficiency, maximise value, and mitigate risks for their clients.

CASE STUDY: Leveraging Whole Life Costing in Laptop Procurement

Situation:

Novo-K was engaged in a global client project involving the procurement of laptops. The client faced several challenges as their approved distributor lacked arrangements to procure directly from the Original Equipment Manufacturer (OEM), resulting in increased procurement costs.

Objective:

Our objective was to optimise the procurement process for the bulk requirement of laptops by leveraging our expertise in whole life costing (WLC). This included the process of procuring laptops that included taking into account the long-term arrangements while considering the total cost of ownership over the entire life cycle of the devices.

Actions:

• We collaborated closely with the client’s IT team to define laptop specifications, considering the overall requirements and estimated budget, utilising WLC principles by taking the following into consideration:

1. Product Cost
2. Warehousing Cost
3. Delivery Cost
4. Software licensing Cost
5. Maintenance Cost
6. Software Subscription Cost
7. Decomissioning Cost

• From a strategic point of view, we evaluated the relevance to various types of decision-making and assessment processes. This included its application to decisions required at various stages of an asset’s life as well as procurement decisions
• We discussed the qualitative aspects as well, such as the supplier’s ability to deliver to certain standards, deliver on time and provide appropriate long-term support, along with the consideration of an asset’s effectiveness in the long term
• Assessed the operational needs of the laptops, including costs, performance requirements, software compatibility, durability and the decommission process of the product.
• Conducted thorough market research to identify top distributors capable of fulfilling the client’s requirements and accessing OEM products.
• Leveraged Novo-K’s proprietary “Sourcing 2 Supervision” process, issuing a tender to selected suppliers, ensuring transparency and competitive pricing, integrating WLC factors into the evaluation criteria.
• Identified the potential risks associated with each procurement option, such as supplier’s due diligence and assurance of supply
• Assessed the short-term and long-term benefits and drawbacks of each option, considering both quantitative and qualitative factors.
• Negotiated with the OEM and with Tier 2 distributors to establish a commercial model that aligned with the client’s budget and procurement objectives, by considering WLC principles.
• Throughout the procurement process, emphasised the importance of considering the total cost of ownership and long-term value rather than just upfront costs, incorporating WLC insights and analysis.

Result:

Our strategic approach made a significant difference by securing a framework contract with a selected distributor and aligning with the OEM’s global pricing model, leading towards a remarkable 14% cost savings for the client. This reduction in procurement cost underscored the effectiveness of whole life costing in driving value and optimising procurement outcomes.

Aftermath:

The successful application of whole life costing in this procurement project demonstrated our capability to unlock hidden value and drive sustainable procurement practices. It positioned us as a trusted partner for clients seeking strategic procurement solutions focused on long-term value optimisation. This case study highlighted the transformative impact of whole life costing in reshaping procurement practices and fostering well informed decision-making in strategic sourcing.