Total Cost of Ownership
The term Total Cost of Ownership (TCO) is closely related to the term 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 goods procurements or investment alternatives. A detailed calculation of TCO is very time-consuming, as the impacts of a procurement or investment can be very far-reaching. These impacts must be identified and quantified in monetary terms.
Nevertheless, considering TCO in supply chain management is very important to counter the danger of being too focused on the purchase price when making procurement and investment decisions.
Create a TCO model for your company that is accepted by all parties directly or indirectly involved in the value chain. This model should contain the cost variables to be considered and mechanisms for its estimation. A scientifically precise determination of the TCO is not necessary. Even a rough calculation can protect against wrong decisions.