What is the difference between should cost and TOC?
As I mentioned during the sessions, formal Procurement is born out of manufacturing so allow me to answer this question in a manufacturing context and then we will consider how it applies to services management (which Travel sits).
If we consider the cost of a motor car, a ‘Should Cost’ exercise would factor in all the the component parts, steel, engines, seats, electrical components, labour to assemble, profit margin and then delivery costs. You would then arrive at an amount of money which is the minimum amount that motor car could be purchased for. You could then use this number to work out your negotiation strategy, and even in the most extreme of circumstances decide if you want to manufacture the product yourself (make versus buy). In the context of travel, ‘should cost’ would allow you to work out the likely and target price for negotiating a TMC service.
TCO (total cost of ownership) - again if we consider the motor car, we would consider not just the purchase price of the vehicle, but the service intervals, the cost of repairs, the likely life span of the vehicle, the cost of fuel and even the disposal cost (which for a car would likely be the residual value of the vehicle after x years). A motor car which is more expensive upfront may actually be better value overall when the total lifetime costs (total cost of ownership) are considered.
In a travel context, TCO would be useful when considering for example hotels. A hotel which is further away maybe cheaper but when we consider taxi transfers and the impact to time and productivity for employees, maybe far more expensive.
I hope this helps clarify and thank you so much for the question.