0.3Stakes: cost, quality, time and risk
The essentials in 30 seconds
- CQT triangle: cost, quality and lead time are never maximised together — trade off by purchase criticality.
- TCO: true cost adds price, transport, customs, stocks, poor quality and risk — the ranking changes.
- Risk = 4th dimension: a chain stretched on costs alone is fragile; a stockout wipes out the savings.
Running mini-case — Nadia and the cheaper carton
Nadia receives a 10% cheaper carton offer from abroad, against her usual supplier delivering in 5 days. The price shines, but Nadia gets out her calculator: transport, customs at the port of Algiers, safety stock for 30 days and delay risk on agri-food production that cannot wait. The cheapest becomes the most expensive once delivered.
Sequel to cases 0.1-0.2 — Nadia moves from price to total cost.
1. The cost-quality-time triangle
Every purchase arbitrates between cost, quality (consistent conformity to need) and time (speed and above all reliability). The CQT triangle reminds you that you cannot maximise all three at once: the cheapest is rarely the fastest nor the most consistent.
Buying means choosing consciously: on a commodity the cost may prevail; on a component that stops production, reliability prevails; on safety or brand image, quality is non-negotiable.
The classic trap is letting price — the most visible criterion — crush the other two, then paying the difference in delays, non-conformities and disputes.
2. From price to total cost of ownership
The true cost is not the listed price. Total cost of ownership (TCO) adds: price + transport + customs duties + stocks + cost of poor quality + administrative costs + risk.
A distant supplier cheaper per unit often becomes more expensive delivered to you once transport, customs and safety stock are priced. Comparing on TCO often changes the ranking.
TCO is the tool that reconciles purchasing and operations: it makes visible the hidden costs that price alone hides.
3. Risk, the fourth dimension
A supplier can be good on CQT and fragile: precarious financial health, dependence on a single subcontractor, unstable region, saturated capacity. Recent crises showed that a chain optimised only on costs is fragile.
The cost of a stockout (production stopped, lost sales, damaged image) almost always exceeds the savings that allowed it. Segmenting purchases by stake and risk lets you set priority: efficiency, cost, security or partnership.
Integrating risk means accepting to pay a little for security (buffer stock, dual sourcing) where criticality justifies it: insurance can be priced, lack of foresight is endured.
🔎 Concrete example — The cheapest supplier that costs the most
Two offers for the same part: offer A at €10.00 in 5 days, offer B at €9.00 in 30 days from abroad. Once transport, customs, safety stock for 30 days and cost of a likely delay are added, B's TCO exceeds A's by 12%.
Reading: price alone saved 10%, TCO loses 12%.
Lesson: always compare on total delivered cost and risk, not list price.
Section vocabulary
- CQT triangle
- Cost, quality, time: three requirements impossible to maximise together — buying is conscious trade-off.
Simple example: Nadia prioritises reliability for critical cartons and cost for office supplies.
What it is not: demanding the cheapest, fastest and perfect all at once.
Reflex: write the CQT priority before comparing any offer.
- Total cost of ownership (TCO)
- Full cost: price + transport + customs + stocks + poor quality + admin + risk.
Simple example: Nadia prices imported cartons delivered to Algiers: price + freight + customs + 30 days of stock.
What it is not: comparing two offers with different scopes as if they were equivalent.
Reflex: always compare on delivered cost, never on list price.
- Service level
- Percentage of demand served on time and in full; measures reliability of a supplier or chain.
Simple example: Nadia notes her usual supplier delivers 96% on time and complete.
What it is not: judging a supplier on price alone without measuring punctuality.
Reflex: track the service level of your 3 key suppliers.
- Stockout
- Shortage at time of need; its cost almost always exceeds the savings that caused it.
Simple example: Nadia prices a line stoppage if cartons run out on a Monday morning.
What it is not: saving a few dinars on a component that stops all production.
Reflex: price the cost of a stockout before cutting back on the critical.
- Supplier risk
- Probability of failure (finances, capacity, dependencies, location); fourth dimension alongside CQT.
Simple example: Nadia spots that the cheapest depends on a single distant, saturated subcontractor.
What it is not: looking only at price while ignoring financial health and dependencies.
Reflex: note one major risk per critical supplier.
In practice — Consciously balance the CQT triangle on your purchases
- List your 5 main purchases and note for each what really matters most: cost, quality or time.
- For each purchase, estimate the cost of failure: what happens if it's late or non-conforming?
- Spot the purchase where price prevailed while criticality required reliability: that's your misplaced risk.
- Sketch a TCO on one purchase: price + transport + customs + stock + poor quality — compare to price alone.
Ready-to-say script — demand a TCO comparison
“Thank you for your 9-euro offer. To compare on equal scope, can you price transport, real lead time and MOQ for me? I will decide on total delivered cost, not on price alone.”
Say to a supplier tempting on price to reveal hidden costs before deciding.
Copy-paste template — express TCO comparison
SUPPLIER A / B: _______________ / _______________
UNIT PRICE: _______________ / _______________
TRANSPORT + CUSTOMS: _______________ / _______________
SAFETY STOCK (days × cost): _______________ / _______________
POOR QUALITY + RISK: _______________ / _______________
DELIVERED TCO: _______________ / _______________
CQT PRIORITY (cost / quality / lead time): _______________Small business / tight budget
No complex spreadsheet: add price + carriage + an estimated delay allowance, and the winner already shows in 8 cases out of 10.
Algeria SME
Convert everything into dinars delivered to Algiers: freight, customs duties, port storage at the port and stock covering clearance — local often wins back.
Critical purchase
If a stockout stops production: weight reliability double the price and plan buffer stock or dual sourcing, even paid.
Simple purchase
Trivial, substitutable supply: price may prevail — keep a light TCO (price + carriage + free carriage) without spending a day on it.
✓ Best practices
- Set CQT priority per purchase family before comparing offers: weighting predetermines choice.
- Always calculate a simplified TCO before switching supplier for an attractive price.
- Segment your purchases (stake × risk) to know where to be aggressive on cost and where to pay for security.
✗ Common pitfalls
- Letting price crush quality and reliability, then paying in delays and disputes.
- Comparing offers with different scopes (one without transport or warranty) as if equivalent.
- Optimising cost while ignoring risk: the stockout wipes out years of savings.
Key takeaways
- CQT triangle: you never optimise all three at once, you trade off by criticality.
- Think in TCO: offer ranking changes once hidden costs are added.
- Risk is the 4th dimension: a chain stretched only on costs is fragile.
- Segment purchases (stake × risk) to set the right priority: cost, security or partnership.
48h Challenge — apply tomorrow
Take 1 purchase where price prevailed and compute its simplified TCO (price + transport + customs + stock) with the template above. Does the ranking still hold?
- I can explain the CQT triangle and TCO without hesitating.
- I have compared two offers on total delivered cost.
- I have spotted one purchase where price crushes reliability.
Frequently asked questions
Is the cheapest not the best choice?
No: price is only part of real cost. Add transport, customs, safety stock, poor quality and risk. A 10-15% price gap often reverses on TCO. Price only dominates on simple, substitutable low-stake purchases.
How to choose when everything seems priority?
Segment your purchases: low stake/low risk → efficiency; high stake/low risk → cost leverage; low stake/high risk → security; high stake/high risk → partnership. The matrix focuses your time where it pays.
What does thinking in total cost of ownership (TCO) mean?