Most procurement teams compare component suppliers on unit price. The ones that beat their peers on 3 year spend compare total cost of ownership. Those are two very different calculations, and the gap between them is where the 20 percent savings usually hide.
This resource is the companion to our interactive Component TCO Calculator. It explains the four cost categories the calculator models, how we estimate each one, and the scenarios where switching suppliers actually pays back the switching cost fastest. Launch the calculator at any point below and plug in your own numbers -- it takes about two minutes and you can optionally have the full breakdown emailed to you.
The four costs most unit price comparisons miss
Unit price is the easy number. Every RFQ comes back with one, and every procurement system sorts by it. The problem is that unit price typically represents only 55 to 70 percent of the 3 year cost of owning a component. The rest lives in four categories that are harder to quantify but just as real.
Inventory carrying cost is the first hidden cost. Every unit sitting on your shelf ties up working capital at your cost of capital, consumes warehouse space, and gets taxed, insured, and occasionally written off. Industry standard carrying cost for industrial components runs 18 to 25 percent of inventory value per year. Longer lead times force higher safety stock, which compounds carrying cost for every week of lead time added.
Admin overhead per SKU is the second hidden cost. Each supplier relationship consumes buyer time: PO generation, expediting calls, invoice reconciliation, RMA processing, new vendor onboarding, sample evaluations. Industry benchmarks put this at 4 to 8 hours per SKU per year depending on supplier region and reliability, at a loaded labor rate of 65 to 85 dollars per hour.
Quality failure cost is the third. Every defect rate point above your target becomes rework hours, scrap, expedited replacement freight, and occasionally warranty claims on the finished product. A 2 percent defect rate on a 50 dollar component used in a 5000 dollar finished assembly can easily cost more per year than the component itself.
Switching cost is the fourth, and the one that makes procurement teams stick with the wrong supplier. First article approval, tooling qualification, sample validation, and internal change orders all consume engineering time. Our calculator amortizes switching cost over 3 years so the comparison is apples to apples against the incumbent.
How the SB5 TCO Calculator models each cost
The calculator asks for your current annual volume, current unit price, current lead time, current defect rate, and your estimate of how many SKUs and suppliers you are managing in the target category. From those inputs it computes a 3 year landed cost for staying with the incumbent and a 3 year landed cost for switching to SB5, using conservative assumptions you can override.
Unit price savings assumes a 15 to 20 percent reduction, which is consistent with what our customers have actually seen on matched specifications. The calculator lets you dial this range up or down if you have a specific quote to compare against.
Lead time savings apply once warehoused reorders kick in. First production run runs 21 to 45 days depending on complexity, but approved repeat specs ship from Plant City, FL in 1 to 5 business days. The calculator converts that lead time reduction into a 30 percent safety stock reduction and re-prices carrying cost.
Admin overhead savings come from BOM consolidation. Buying 12 SKUs from one supplier instead of 4 or 5 removes PO, invoice, and vendor management cycles. The calculator multiplies hours saved by your hourly rate and your actual SKU count.
Quality improvement is the one category the calculator treats conservatively. We model a modest defect rate improvement (typically from 1.5 percent to 0.5 percent) because first article approval and free verification samples let you validate before committing to production volumes. If your current defect rate is higher, override the default.
When a TCO analysis pays for itself fastest
Not every component category is worth a TCO rebuild. The effort to switch a supplier for a 200 dollar a year commodity fastener will never pay back. The components where TCO analysis is clearly worth it share three characteristics.
First, annual spend above about 25,000 dollars. Below that threshold, a 15 percent unit price improvement rarely covers switching cost within the 3 year window, even accounting for hidden costs.
Second, recurring volume. Components that reorder 4 to 12 times per year unlock the warehoused reorder model, which is where the lead time and carrying cost savings show up. One time special orders do not benefit from stocking programs.
Third, current quality or lead time pain. If your incumbent is hitting your specs and delivering on time, the hidden costs are smaller and TCO looks roughly flat. If you are expediting, accepting higher defect rates, or holding extra safety stock to cover supplier reliability, the TCO gap widens quickly.
Frequently Asked Questions
Do I have to give you my email to use the calculator?
No. The calculator runs entirely in your browser and shows live results as you adjust inputs. Emailing yourself a copy of the breakdown is optional -- it is there if you want the numbers in writing to share with leadership, but nothing is sent anywhere unless you choose to hit the Email Results button.
Where do your default assumptions come from?
The 18 to 25 percent carrying cost range, the 4 to 8 hours per SKU admin overhead, and the 65 to 85 dollar hourly rate are industry benchmarks from procurement and supply chain research. The 15 to 20 percent unit price savings and the 30 percent safety stock reduction are from our own customer data on matched specifications and warehoused reorder programs. Every default is overridable in the calculator so you can replace them with numbers you trust.
Does the calculator account for tariffs or shipping?
Yes, indirectly. The unit price input is the landed cost you actually pay, so if you are currently importing and paying tariffs and ocean freight, that is already baked into the number you enter. The output then compares against SB5 pricing which is quoted as landed cost from Plant City, FL with standard US freight.
How accurate is the 3 year projection?
The calculator is designed to be conservative on the savings side and realistic on the switching cost side, so the payback periods it reports are usually on the longer side of what actually happens. The goal is not perfect precision -- it is a defensible business case you can take to your CFO. If the payback is attractive even with conservative assumptions, the real numbers will almost certainly look better.
Run the numbers on a component you are currently sourcing
The calculator takes about two minutes. Pick one component category where you already know annual volume, unit price, and lead time, plug the numbers in, and see the 3 year TCO comparison. If the payback looks interesting, request a verification sample and we will match specs against your incumbent before you commit to anything.