Total Cost of Ownership Models: An Exploratory Study

Total Cost of Ownership Models: An Exploratory Study SUMMARY This research examines organizational purchasing models focusing on the use of total cost of ownership (TCO) to value purchase opportunities. The research presents evidence that leading‐edge companies actually use such models. This exploratory study provides, for the first time, data on the nature, and use, of the cost drivers on which organizations base their TCO computations. The study suggests a generic model of total cost of ownership is not appropriate. However, the findings of this research suggest a TCO model based on a core set of cost drivers, along with an auxiliary set of cost drivers, is appropriate. The core cost drivers would be present in all, or most, TCO computations. Purchasing managers could use different, specific cost drivers from the auxiliary set to tailor the TCO computation for a particular purchase situation. The authors also suggest that a value‐based, multi‐firm, or supply chain, TCO computation model is needed. Such a TCO model should be similar to a single‐firm TCO model. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Supply Chain Management Wiley

Total Cost of Ownership Models: An Exploratory Study

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Publisher
Wiley
Copyright
Copyright © 2002 Wiley Subscription Services, Inc., A Wiley Company
ISSN
1523-2409
eISSN
1745-493X
DOI
10.1111/j.1745-493X.2002.tb00132.x
Publisher site
See Article on Publisher Site

Abstract

SUMMARY This research examines organizational purchasing models focusing on the use of total cost of ownership (TCO) to value purchase opportunities. The research presents evidence that leading‐edge companies actually use such models. This exploratory study provides, for the first time, data on the nature, and use, of the cost drivers on which organizations base their TCO computations. The study suggests a generic model of total cost of ownership is not appropriate. However, the findings of this research suggest a TCO model based on a core set of cost drivers, along with an auxiliary set of cost drivers, is appropriate. The core cost drivers would be present in all, or most, TCO computations. Purchasing managers could use different, specific cost drivers from the auxiliary set to tailor the TCO computation for a particular purchase situation. The authors also suggest that a value‐based, multi‐firm, or supply chain, TCO computation model is needed. Such a TCO model should be similar to a single‐firm TCO model.

Journal

Journal of Supply Chain ManagementWiley

Published: Jun 1, 2002

References

  • Effectively Selecting Suppliers Using Total Cost of Ownership
    Degraeve, Degraeve; Roodhooft, Roodhooft
  • Towards Explaining Activity‐Based Costing Failure: Accounting and Control in a Decentralized Organization
    Malmi, Malmi

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