Healthcare organizations often incur fierce competition between different departments for the scarce dollars allocated towards capital equipment purchases. When called upon to justify the cost-effectiveness of specific product purchases to upper administration, the department manager/administrator must understand the difference between total cost of ownership versus purchase price.
The purchase price represents the amount paid to a supplier to buy a product. A price-oriented procurement approach works aggressively to secure savings by paying less for products/services than in the past, and only considers the price paid for the equipment or services.
There are several benefits to taking a total cost of ownership approach when buying equipment. It provides an overall perspective so you can make meaningful comparisons between different products of the same type.
Total Cost of Ownership (TCO):
The TCO model describes a management accounting concept that evaluates all of the associated costs over the life of each asset, not just the purchase price. TCO varies, depending on the industry, the piece of equipment and other related elements, but may include such things as:
- Equipment Acquisition – From the start of researching the price, to the cost of processing the purchase order(s), paying for shipping, warehousing, the delivery and setup, to the final clean-up.
- Financing - the cost of outright purchase versus leasing or other financing installment payment programs.
- Installation – Set up may include handling, plumbing, and electrical supply, plus any wall mounting requirements.
- EHR connectivity – IT personnel and software requirements needed to correctly capture or exchange data.
- Available space – May cause you to enlarge your space, conduct facility remodeling for weight support, or add ventilation or electrical supply.
- Repair & Maintenance – warranty of the products, purchasing additional or extended service contracts and parts.
- Supply Costs - the cost of disposable supplies needed for the item to operate as intended.
When making purchasing decisions be sure to keep in mind your total cost of ownership!
Let an experienced specialist from CME (formerly Claflin Medical Equipment, Hospital Associates, & RSI) guide you and help you avoid unforeseen costs. We have over 30 specialists nationwide to assist you in quantifying and comparing the acquisition and operational costs of different equipment items.