Total cost of ownership
The concept of total costs of ownership is closely linked to the concept of life cycle costing. In both cases, the aim is to take into account direct and indirect costs over the entire life cycle of the procured goods or the investment made when calculating and comparing the procurement of goods or investment alternatives. A detailed calculation of the TCO is very time-consuming, as the effects of a procurement or investment can be very far-reaching. These effects must be identified and quantified in monetary terms.
Nevertheless, the consideration of TOC in supply chain management is very important in order to counter the danger of basing procurement and investment decisions too strongly on the purchase price.
Our tip:
Create a model for your company that is accepted by all parties directly or indirectly involved in the value chain to calculate the total costs of ownership for the procurement of goods. This model should contain the cost variables and mechanisms to be taken into account for their estimation. A scientifically precise determination of the TOC is not required. Even a rough calculation can protect you from making the wrong decisions.
