Understanding TCO is critical for Transport and Logistics companies during this period of growth
With businesses throughout Australia moving to trade online as a result of COVID, many transport & logistics firms have never been busier.
To keep pace with demand, and adapt to the new world, Transport and Logistics businesses increasingly rely on the latest technology infrastructure to drive efficiencies and stay ahead of operational demand.
Having the right infrastructure in place is critical, as is understanding the true Total Cost of Ownership (TCO) for your operation and network of couriers, drivers, and operational areas.
Do you know the true total cost of infrastructure for your technology over the useful life of the equipment?
Knowing the TCO for your business existing technology assets is critical to ensuring you are informed and making the right commercial decisions for your technology refresh in the future. Importantly, this knowledge empowers you to be confident in the allocation of your financial resources toward core business priorities and your people.
In this article, we take a look at the importance of calculating the TCO for IT equipment and how accurate and advanced TCO planning can give Transport and Logistics businesses like yours the confidence and objectivity to make the right decisions.
What is the total cost of ownership (TCO)?
Understanding the TCO for an asset includes an objective assessment of both the direct costs and (the often-overlooked) indirect costs associated with acquiring and operating technology over the asset's lifetime.
Once the TCO of an asset is calculated, a CFO can make an objective comparison of purchasing options available and benchmark these options in line with the unique needs and objectives of the logistics organisation.
Calculating the TCO for IT equipment
Calculating the TCO is easier for some assets than others. It's quite simple, for example, to calculate the TCO for a car. While a new vehicle has an initial purchase price, the TCO will factor in running costs such as servicing, fuel, insurance, and depreciation.
By comparison, calculating the TCO for IT equipment needs to factor in purchase costs, operational costs, and the asset's expected useful life. Accounting experts will know that the operational costs for IT equipment and other factors that need to be evaluated to determine an asset's TCO include:
• removal and disposal of your legacy environment
• installation costs, including internal resourcing costs
• software upgrades
• repair costs
• helpdesk support.
And finally, the unseen and often unqualified opportunity cost of freeing up capital from technology ownership to reinvest in business growth and generate increased Return On Investment (ROI) for the shareholders
Using TCO calculations to make stronger commercial decisions
TCO is a key consideration for CFOs and in assessing the best way to finance equipment by either CapEx (cash) or OpEx (Lease or rental).
In many cases, particularly when the preservation of cash is important for growing organisations, leasing your IT equipment can reduce your TCO and deliver better financial outcomesl. Consider the following:
A key benefit of leasing agreements is that payments are spread evenly over the life of the agreement. This allows organisations to align the direct and indirect costs of the asset over its useful life instead of a significant capital outlay to purchase the assets outright.
The useful life of a technology asset is a key variable in calculating your TCO with the majority of unpredictable maintenance and servicing costs incurred in the later stages of an asset’s lifecycle. A lease arrangement reduces these costs as you can upgrade the asset as new technology becomes available, so your business doesn’t stop or slow down. This shifts businesses from a ‘buy once, maintain forever’ model to an ‘acquire, run, refresh’ and keep moving model.
In a leasing arrangement, the ownership life of the assets can be aligned with the investment period. Once this period expires, any costs associated with disposal or decommissioning of the assets can be bundled into the next technology refresh. This means you don't need to factor disposal and decommissioning costs into your TCO.
Further indirect costs can be incurred when a company owns its technology assets outright. In these environments, there can be a tendency to continue using something “because it works”. This can place your business at risk of falling behind with operational frustrations, delivery delays, additional customer requests for POD’s taking up customer service and ops staff time.
In most cases, Transport and Logistics companies today find that leasing technology makes more financial and operational sense. Leasing technology with a specialist IT leasing provider can reduces businesses TCO compared to buying technology assets outright.
If you are interested in learning more about how leasing technology for businesses just like yours can reduce your TCO, contact us, and we can provide you with an objective assessment and consultation for you to evaluate.
You might also like
With 2021 coming to a close, it's time to take a step back before you prepare to take on 2022! A lot has happened this ...
Even though IFRS 16 came into effect two years ago, banks are still looking at a company's balance sheet using the old ...