Buying the lowest Total Cost of Ownership (TCO)

When a Petrochemical end-user builds a new plant, almost all the end-users have specifications with a preferred vendor list. For the competition the end-users put more than one brand on the preferred vendors list. The Engineering, Procurement, and Construction (EPC) contractor will buy the cheapest brand of the vendors list. This means selection is based on minimizing the Capital Expenditures (CAPEX) rather than minimizing the Total Cost of Ownership (TCO), being the sum of CAPEX and Operating Expenditures (OPEX). Analyzing the TCO it becomes clear the OPEX can be divided into two segments. The first one is the controlled OPEX which can clearly be calculated. The a second segment of OPEX however is not that clear and is depending on risk. Risk is defined as the product of a probability a situation during lifetime of the product will take place and the consequences it will have for the process in which the product is fulfilling it´s role. Controlling risk means reducing the probability or limiting the consequences. Some tools out of the field of asset management used by utilities are applied for a Low Voltage Motor Control Centre (MCC) to give guidance how decisions can be argued. As will be found limiting the consequences can be translated into mandatory and preferred specifications that can be used in a tender. But what will happen when one of the brands on the preferred vendor list has a product development that will increase the CAPEX and will reduce the TCO, e.g. will reduce the risk. To take specific manufacturer specifications into account, it will demand that the purchase process find a way to take this into account, by having more aspects as CAPEX only to make the decision to which vendor the project will be granted.