Total cost of ownership (TCO) in logistics goes beyond just the purchase price of your packaging and materials. It includes all costs incurred throughout the entire life cycle: from purchase and use to maintenance and eventual disposal. For companies in the logistics sector, understanding TCO is crucial to making better investment decisions, optimising processes and controlling costs in the long term.
Total cost of ownership (TCO) in logistics is a comprehensive cost model that calculates all expenses associated with logistics resources and processes throughout their entire life cycle. Unlike traditional cost calculations, which focus primarily on the purchase price, TCO also takes into account operational costs, maintenance costs, downtime costs and, ultimately, disposal or residual value.
TCO gives you a realistic picture of what a packaging solution, means of transport or logistics process actually costs over its entire period of use. This makes it possible to compare different options more fairly and make better-informed decisions.
This concept is important in the logistics world because many companies tend to look only at the initial costs, while the operational and maintenance costs over the lifetime of the product are often much higher. Packaging with a higher purchase price may ultimately have a lower TCO than cheaper alternatives due to its longer lifespan, better protection or reusability.
When calculating the total cost of ownership in logistics, you must take into account various cost components that together make up the total cost. These can be divided into direct and indirect costs:
For industrial packaging, it is important to also take into account the costs of product protection. Good packaging prevents damage during transport and storage, which can save significant costs. Poor or unsuitable packaging can lead to claims, returns and dissatisfied customers – all hidden costs that must be included in the TCO calculation.
Calculating the TCO for packaging solutions requires a systematic approach in which you map out all costs throughout the life cycle. Follow these steps for a complete TCO calculation:
For customised industrial packaging, it is important to also include the value of the product to be protected in your calculation. The higher the value of the product, the greater the impact of potential damage on your TCO. High-quality protective packaging may be more expensive to purchase, but if it prevents damage to expensive equipment or sensitive components, the total TCO is often lower.
Circular aspects such as reuse, repair and recycling have a positive impact on the TCO. Reusable packaging has a higher purchase price, but multiple usage cycles significantly reduce the cost per shipment. In addition, sustainable packaging concepts can lead to lower disposal costs and sometimes even generate residual value.
TCO calculations are indispensable for good logistics decision-making for several reasons:
Better comparison of alternatives: By taking all costs over the entire lifetime into account, you can compare different options more fairly. A packaging solution with a higher purchase price may ultimately be more cost-effective due to lower operating costs, less product damage or a longer service life.
Identification of hidden costs: TCO analysis reveals costs that would otherwise be overlooked, such as downtime, product damage or inefficient processes. This helps you identify and address bottlenecks in your supply chain.
Supporting sustainability goals: TCO calculations reveal the financial benefits of sustainable solutions. Reusable packaging often has a lower TCO than disposable packaging, which offers both economic and ecological benefits.
Long-term planning: TCO insights enable you to draw up better budgets and make investment decisions that are profitable not only in the short term but also in the long term.
Supplier selection: TCO helps you select the right suppliers by looking beyond the purchase price alone. A supplier that offers high-quality, sustainable packaging solutions may still be the most cost-effective choice, despite a higher initial price.
For companies in specialised sectors such as defence, medical technology or high-tech industry, TCO thinking is particularly important. Products in these sectors are often expensive and fragile, which means that the consequences of transport damage can be enormous. Good protective packaging not only prevents direct damage, but also indirect costs such as delays, reputational damage and customer loss.
When making TCO calculations for logistics solutions, you may encounter various pitfalls that affect the accuracy of your analysis:
Ignoring indirect costs: A common mistake is to only include directly visible costs such as purchase and transport, while indirect costs such as administration, downtime and risks are forgotten. These indirect costs can form a substantial part of the TCO.
Underestimating maintenance costs: Especially with reusable packaging, the costs of cleaning, inspection and repair are often underestimated. As packaging ages, these costs usually increase.
Incorrect estimation of service life: Overestimating how long a packaging solution will last leads to an underestimation of the TCO. Take realistic conditions of use and wear and tear into account.
Ignoring damage costs: The costs of product damage due to inadequate packaging are often underestimated or not included at all. This includes not only the direct repair or replacement costs, but also indirect costs such as customer satisfaction and reputational damage.
Not including sustainability aspects: Costs for waste disposal, recycling or fines for non-compliance with environmental regulations are often overlooked. With increasing regulations around sustainability, these aspects are becoming increasingly important.
Too short a time horizon: By only looking at the short term, you miss out on the long-term benefits of quality solutions. A TCO calculation should cover the entire expected lifespan.
Failure to update calculations: Market conditions, fuel prices and regulations are constantly changing. TCO calculations need to be updated regularly to remain relevant.
To avoid these pitfalls, it is important to use a structured TCO model and involve all relevant departments (purchasing, logistics, quality, finance) in the calculation. This ensures a more complete picture and more accurate results.
Total cost of ownership is a valuable concept that helps you look beyond the purchase price of logistics solutions. By mapping out all costs throughout the life cycle, you can make better decisions, identify hidden costs and optimise your supply chain.
TCO thinking is particularly important for industrial packaging. Good packaging not only protects your product, but also reduces costs due to damage, returns and inefficient processes. Reusable, sustainable packaging solutions often have a higher purchase price, but their longer lifespan and better protection ultimately result in a lower TCO.
At Faes, we understand the importance of TCO thinking in logistics. As specialists in customised industrial packaging, we not only help our customers with high-quality packaging solutions, but also with optimising their total packaging costs. By contributing ideas early on in the design process, we can develop packaging that perfectly matches your logistics needs while minimising the TCO.
It is wise to update your TCO calculations at least once a year, but also when there are significant changes such as price increases, new regulations or changes in your logistics processes. Factors such as fuel prices, labour costs and environmental taxes change regularly and can have a major impact on your total costs. By keeping your TCO model up to date, your decisions will continue to be based on the most recent data.
Involve suppliers early in the process by communicating openly about your TCO objectives. Ask them not only for quotes, but also for data on service life, maintenance costs and end-of-life options. The best suppliers will contribute ideas on how their products can reduce your total costs, not just the purchase price. Consider including TCO performance in supplier evaluations and long-term contracts to encourage continuous improvement.
The biggest savings come from reduced purchase frequency, lower waste disposal costs and better product protection. Although reusable packaging requires a higher initial investment, these costs are spread over multiple usage cycles. Companies often report TCO reductions of 25-40% after switching to reusable systems. Additional benefits include less administration for repeat purchases and improved logistics efficiency through standardised packaging dimensions.
