The Elements of Negotiation

ELEMENT 40Total Cost of Ownership

In the context of SMARTnership negotiation (a collaborative process above partnership), a deep understanding of the Total Cost of Ownership (TCO) is essential. SMARTnership, focusing on creating mutual gains and fostering cooperation, necessitates a thorough appreciation of all costs associated with an agreement or purchase, not just the upfront price. TCO, the sum of all costs associated with an asset or service over its life cycle, becomes a crucial component in such negotiations.

TCO encompasses both direct and indirect costs incurred throughout the life of a product or service, including maintenance, operation, and even disposal. This broad perspective allows negotiators in a SMARTnership to make more informed, long-term beneficial decisions.

For example, consider a company planning to purchase new office printers. A traditional negotiation approach might focus solely on the printers' purchase price. However, in a SMARTnership negotiation, the focus shifts to TCO. Various suppliers offer different terms:

• Initial purchase price: Lowest from Supplier A.
• Maintenance and repairs: Longer warranty and lower costs from Supplier B.
• Ink/toner costs: More efficient usage and long-term savings from Supplier C.
• Energy efficiency: Higher upfront cost but lower energy bills from Supplier D.
• Downtime and efficiency: Reliable printers with less downtime from Supplier E.

In a SMARTnership approach, the company engages suppliers in a discussion to minimize ...