The total cost concept and the yellow lizards

On weekends, I take the opportunity to relax from the activity of the week and go to the field with my friend Fernando, we walk briskly for 15 miles in three hours. We get up to a stream by the north mountain range of Madrid that in summer is almost dry. Although the area has suffered ecologically, there are some species worthy of being observed. The other day a shiny yellow-green lizard crossed our way. What a shock! My god!. We, city dwellers, have only seen these bugs in TV while making “siesta”.

The trip gives us time to talk about hundreds of things, football, politics, health, religion, business, but always enjoy telling our family or business achievements, like fishermen when they speak about the biggest fish caught the last year.

Talking of business, the other day, Fernando explained to me what the total cost is with a graphic illustration, here it goes. In a Spanish refinery, there was a loss of seal failure with a serious impact on operations, forcing them to stop 24 hours. However, as it was already the second time it happened, they asked the usual suppliers for a lasting repair, as a third failure was not admissible. Latty where Fernando works presented his proposal at a price higher than competitors, while guaranteeing the repair due to the quality of the materials making up the seal.

The refinery opted for Latty. After that it is the fourth year already without problems.

The higher cost of Latty solution is minimized if we take into consideration what another24-hours stop of operations could be.

That’s the big difference between the cost of a solution that requires little maintenance (total) versus a low entry cost of a solution in the long run, that implies a high probability of risk of short-term replacement.

Educate our customers on how to make such decisions is an art that many companies overlook and leave up to their salespeople. Would it not seem more logical to treat it as part of a solid marketing strategy?.