It is important to understand the total cost involved in dealing with both foreign and local suppliers. World sourcing involves understanding a wide set of elements and consolidating all the information together to do a fruitful analysis is very tedious. This essay discusses the four A's of Total Cost Data and evaluates the usefulness of this data in my organization. The analysis should provide the relationship between a price paid and the total cost realized.
The figures that make up a total cost model can be categorized into four groupings, and the reliability of the total cost model heavily depends on how data are allocated across the clusters. The four A's are actual, approximate/averages, assumptions and absent.
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Actual is the category with the highest level of reliability, and it consists of the actual data. For the case of international trade, actual data may consist of tariffs, insurance on items, customs duty and unit price. Only limited cost models can include actual data only.
Averages/approximations are the second category and include averages or estimates. The data on this category is established on statistics coming from internal sources. Due to the wide disparity that may occur between the average and the actual cost, the actual charges may be overstated or understated.
Assumptions are derived from external sources and serve as the basis for the total cost. Assumptions should be as realistic as possible to come up with an efficient model.
Absent is the fourth and last data grouping and it consisting of statistics that is missing from a total cost model. The information from the models is useful in my organization since it helps in making critical supply chain decisions.
