Buying Logistics Technology? Consider the Total Cost of Ownership
Not too long ago buying anything that qualified as logistics technology involved at least a six figure investment – usually more. Thankfully those days are gone and there are plenty of new and innovative technologies available at much lower costs. Many of the solutions are geared at smaller companies by way of lower price points and are usually simpler applications.
Any company considering a new #logtech solution needs to remember that the cost of technology is not just the purchase price. Every software comes with other direct and indirect costs as part of its total cost of ownership.
These other costs typically start with the implementation. Of course, any new software needs to be set up and made operable so the installation of new hardware and ensuring the necessary network connectivity are likely additional costs.
Few companies would make a decision to add new technology and NOT be aware of these costs. Yet many will underestimate them. The important point is to make sure all the potential costs are budgeted for correctly. In our experience, the “other” costs tend to run from 50-70% of the software's initial cost.
This can also includes costs that are less measurable like lost productivity. Obviously, every technology is bought with the long term goal of improving productivity but there will almost always be a slow-down in the short term and learning curve users need to work through. New technology always comes with the need for additional training.
There are ways to use and benefit from technology that bring down upfront costs. Many 3PL’s offer access to their TMS as a value-add to their shipper customers as an example. There are benefits to this arrangement, especially if a shipper is getting access to functionality they weren't able to afford otherwise. The downside is the shipper’s typically handling over business critical data and operations to an outside third party, and it’s all the more difficult to get out of this kind of supplier relationship if problems comes up.
Unexpected costs can be a good problem when it’s the result of a growing business. More data and more users usually means more costs. It’s not uncommon that applications are priced low for light users, but get exponentially more expensive as the company’s usage grows.
Logistics technology is a great thing. But, companies need to remember to look past the upfront costs of buying any solution and consider the total cost of logistics technology ownership as part of their buying decision.