Total Cost Ownership Injection Molded Parts The purchase price is only the beginning. The real cost of injection molded parts includes so much more. Here’s how to calculate total cost of ownership.

Key Takeaways

| Aspect | Key Information |

Understanding TCO

TCO Components Category% of TotalVisibilityPurchase price50-70% visibleTooling5-15%VisibleQuality3-10%VariableLogistics5-15%VariableRiskVariableOften ignored

TCO Timeframe HorizonWhat to IncludePer-partMaterial, machine, laborProjectTooling, engineering, launchProduct lifeTool amortized, all costsLong-termUpgrades, replacement, end-of-life

Direct Costs

Part Cost Components ComponentTypical %RangeMaterial50-70%45-75%Machine15-25%10-30%Labor5-15%3-20%Overhead5-10%3-15%Profit5-15%5-20%

Tooling Costs ComponentTypical RangeNotesTool design$5,000-20,00010-15% of toolSteel$20,000-100,00030-50% of toolMachining$15,000-50,00025-40% of toolAssembly/tryout$5,000-20,00010-15% of toolTotal tool$50,000-200,000Varies by complexity

Amortization VolumeTool CostAmortization100,000$75,000$0.75/part500,000$75,000$0.15/part1,000,000$75,000$0.075/part

Indirect Costs

Quality Costs CategoryTypical %CalculationPrevention2-5%Quality planning, trainingAppraisal3-5%Inspection, testingInternal failure2-5%Scrap, reworkExternal failure2-10%Returns, warranty

Logistics Costs ComponentTypical %RangeShipping3-8%$0.02-0.10/lbDuty/tariff0-25%Variable by product/originInsurance0.5-1%Value of shipmentExpediting1-3%Emergency shipments

Inventory Costs ComponentCalculationAnnual CostCarrying cost20-30% of value$0.02-0.05/partStorage$0.50-2.00/sq ft/monthVariesObsolescence1-3% annuallyVaries

Risk Costs

Risk Categories RiskProbabilityImpactExpected CostQuality issues10-20%2-5% of value$0.01-0.03/partSupply disruption5-15%1-3% of annual$0.005-0.02/partLead time variability30-50%Expediting costs$0.01-0.03/partCurrency fluctuation100%±5-10%$0.01-0.04/part

Risk Mitigation Costs MitigationCostEffectivenessDual sourcing+5-10% priceHighSafety stock+10-20% inventoryHighExpediting capability+2-5% priceMediumQuality auditing+1-3% priceMedium

TCO Calculation

Per-Part TCO Model Component$/Part% of TotalMaterial$0.3558%Machine$0.1220%Labor$0.058%Overhead$0.035%Profit$0.059%Purchase Price**$0.60100%Shipping$0.023%Duty (if applicable)$0.012%Quality cost$0.023%Inventory cost$0.012%Risk premium$0.012%TCO$0.67112% of price**

Project TCO Model ComponentCostTimingTooling$75,000UpfrontEngineering$10,000UpfrontLaunch/PPAP$5,000LaunchProduction (1M parts)$600,000Over 3 yearsQuality costs$30,000OngoingLogistics$20,000OngoingTotal project cost$740,0003 yearsPer-part TCO$0.74—

Comparison Framework

Supplier Comparison FactorSupplier ASupplier BSupplier CPrice$0.60$0.55$0.65Lead time6 weeks8 weeks4 weeksQuality1.5% scrap0.8% scrap2.0% scrapLocationOffshoreDomesticOffshoreTooling$75,000$90,000$65,000Risk levelMediumLowHigh

TCO Analysis FactorSupplier ASupplier BSupplier CPrice$0.60$0.55$0.65Quality (2%)$0.012$0.004$0.024Shipping (2%)$0.012$0.003$0.012Inventory (2%)$0.012$0.003$0.012Risk (2%)$0.012$0.006$0.024TCO****$0.648****$0.561****$0.722

Decision Framework

Factors and Weight FactorWeightImportancePrice25%Cost focusQuality20%ReliabilityLead time15%ResponsivenessRisk20%Business continuityCapability10%Technical fitRelationship10%Long-term

Score Analysis SupplierPrice ScoreQuality ScoreRisk ScoreTotalA8777.35B9988.35C7656.30

Sensitivity Analysis

Price Sensitivity Price ChangeTCO ImpactDecision Impact-10% price-$0.04/partSignificant+10% price+$0.04/partRe-evaluate$0.01 price$10,000/1MNegotiation room

Volume Sensitivity VolumeTool AmortizationLabor Impact100,000High ($0.50)Efficient500,000Moderate ($0.10)Efficient1,000,000Low ($0.05)Most efficient

TCO Checklist

Cost Components Purchase price Tooling costs Engineering/development Quality costs (scrap, rework) Logistics (shipping, duty) Inventory carrying costs Risk premiums Administrative costs Cost of poor quality Cost of non-conformance

Risk Assessment Supply disruption risk Quality risk Currency risk Lead time risk Regulatory risk Technology obsolescence

Decision Factors Total cost calculated Risk factored in Suppliers compared Sensitivity analyzed Trade-offs understood Decision made

The Bottom Line The purchase price is the tip of the iceberg. Quality problems, inventory costs, logistics expenses, and risks add 20-50% to the real cost. Look beyond the price. Factor in all costs. Assess the risks. And make decisions based on total cost of ownership. That’s how you make smart sourcing decisions.