Example: Vendor Managed Inventory. There are four different Total Cost Of Ownership (TCO) categories that a supplier could impacted when they manage a customer’s inventory:

Revenues - In some cases (not all) a supplier can have a positive impact on revenues. Through better inventory management, downtime may be reduced that could allow the customer to produce more products.

Assets - The obvious asset effected should be a reduction in inventories. Either through consignment or improved turns on items not consigned. But other assets could be impacted as well, such as storage space and storage/handling equipment requirements (although usually only to a minimal extent).

Expenditures - When a supplier manages the customer’s inventories, it usually results in their consolidating orders that can result in fewer deliveries, and if the customer is charged for freight, it could lower their freight costs. Additionally, some suppliers charge for this service, either as a fee or through higher prices. If true, this needs to be included as well.

Processes - Suppliers that manage or help manage their customer’s inventories also reduce the processing costs for their suppliers by performing the processes for them. Typical processes impacted would include; ordering, invoicing, and receiving/stocking due to order consolidation.

By using the Impact Diagram below, companies can “sort out” and visually see the costs that a specific event impacts. This can make it easier to measure (which is the next step).