Total cost of ownership for asset management: Challenges and benefits for asset-intensive organizations
Engineering Assets and Public Infrastructures in the Age of Digitalization
School of Business and Law
© 2020, Springer Nature Switzerland AG. Nowadays, optimal supplier selection process is essential for the performance success of business organizations. Total cost of ownership (TCO) is a method which enables purchasing firms to access all key information for assessing and selecting suppliers. An effective supply chain process which is based on TCO tool is argued to extend purchasing decisions beyond the initial price and consider the long-term perspective of all hidden and explicit costs for carrying out business with various suppliers. All purchasing enterprises are seeking the maximum profit from the purchased products/services. In order to identify all cost drivers, both quantitative and qualitative methodological approaches have been operated and analysed in the TCO application. However, it is not clear which methodologies are better, and under what circumstances, in relation to the TCO concept. This paper examines the application of a range of qualitative and quantitative methodologies in TCO purchasing techniques. The paper outlines and reviews the strengths, limitations and barriers of both qualitative and quantitative methods. In conclusion, the framework supports optimizing decision-making based on total cost of ownership in a firm’s cost management process.