Eskom Procurement Book 2015

TOTAL COST OF OWNERSHIP (TCO)

Table 6.3: Total cost calculation for Chefs Supply [8]. Cost Element

Explanation of cost calculations Cost per kilogram

Percentage

Dried fruit unit price Supplier quoted unit price per kg $0.29

59.2%

Ocean shipping

$2 500 per container/40 000 kg per container

$0.062 12.6%

Tariffs and duties 15% x unit price ($.29)

$0.043 8.8% $0.009 1.8%

Transfer charge from US port to warehouse

$350 per container/40 000 kg per container

Warehouse storage charge

$6.50 per pallet/2 000 kg per pallet $0.003 0.6%

Warehouse handling fee

$6.25 per pallet/2 000 kg per pallet $0.003 0.6%

$0.006 1.22%

Inventory carrying charge

40 000 kg held in inventory each month × unit price ($.29) = $11 600 inventory value; $11 600 × 24% inventory carrying charge = $2 785 annual carrying charge; $2 784/480 000 kg annual demand = $.006 carrying charge per kg $275 per container/40 000 kg per container $4 per pallet/2 000 kg per pallet 3% loss × unit price ($.29). This reduces the annual available dried fruit for use during production to 465 600 kg 2% × 465 600 kilos = 9 312 kg lost during production; 9 312 kilos. × $.29 unit price = $2 700.48 yield loss; $2 700.48/465 000 kilos = $.006 per kilo.

Local freight from warehouse to plant

$0.007 1.43%

Receiving and quality control

$0.002 0.41%

$0.009 1.8%

Product loss before production

$0.006 1.22%

Production yield loss

Administrative overhead Estimated Total Cost

17% × unit price ($.29)

$0.05

10.2%

$0.49

100%

An ingredient that has a $0.29 unit price per kg is estimated to have a $0.49 total landed cost per kg, an increase of almost 70% over the unit price. What is not known is the estimated total cost per kg of doing business with Chefs Supply’s current supplier or the other suppliers the company is considering. That information is critical for making relative comparisons.

6.5.2 INVENTORY CARRYING CHARGES

While most of the costs presented in Table 6.3 are clear given the explanations

142 CHAPTER 6