Table 4 Simplified total cost ownership...

Table 4

Simplified total cost ownership model for substituting commodity

Strategy Cost component	Substituting commodity
Pre-transaction components	A.
Innovative design with multiple materials (R&D involvement) = 55.000$
	B
Testing facilities = 30.000 $
	C
Commodity (long-term) validation = 15.000 $
	Total material qualitification cost (A + B + C) = 100.000 $
Transaction components	D If company purchases commodity A:
Purchase price of commodity A = 1.105,82 $/unit (Tot. Volume 10.000 units)
Transportation cost (land freight) = 150 $/ton
	If company purchases commodity B:
Purchase price of commodity B = 1.384,40 $/unit (Total volume 10.000 units)
Transportation cost (land freight) = 150 $/ton
	E
Commodity switching (change management):
	(1) Set up adjustments for the production equipment
	(2) Handling costs to operate and clean equipment and load the new material
	(3) Extra warehousing space to store the second material
	Commodity switching (change management) = 200.000 $
Post-transaction components	F
Loss of economies of scale (if one contract has a minimum volume, you may lose some discounts as you leverage a different commodity)
	G
Higher scrap rate (i.e. if the new commodity has different performance vs the other)
	H
Market share loss (e.g. if the new commodity offers low performance vs the other)
	TCO = A + B + C + D + E + F + G + H

StrategyCost component	Substituting commodity
Pre-transaction components	A.
Innovative design with multiple materials (R&D involvement) = 55.000$
	B
Testing facilities = 30.000 $
	C
Commodity (long-term) validation = 15.000 $
	Total material qualitification cost (A + B + C) = 100.000 $
Transaction components	D If company purchases commodity A:
Purchase price of commodity A = 1.105,82 $/unit (Tot. Volume 10.000 units)
Transportation cost (land freight) = 150 $/ton
	If company purchases commodity B:
Purchase price of commodity B = 1.384,40 $/unit (Total volume 10.000 units)
Transportation cost (land freight) = 150 $/ton
	E
Commodity switching (change management):
	(1) Set up adjustments for the production equipment
	(2) Handling costs to operate and clean equipment and load the new material
	(3) Extra warehousing space to store the second material
	Commodity switching (change management) = 200.000 $
Post-transaction components	F
Loss of economies of scale (if one contract has a minimum volume, you may lose some discounts as you leverage a different commodity)
	G
Higher scrap rate (i.e. if the new commodity has different performance vs the other)
	H
Market share loss (e.g. if the new commodity offers low performance vs the other)
	TCO = A + B + C + D + E + F + G + H

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