A Framework for Total Cost of Ownership

Abstract

Total cost of ownership is a concept which strives to analyze and understand the true cost of doing business with a supplier, going well beyond price. This paper briefly explores trends which have increased interest in total cost of ownership analysis. Barriers and benefits of total cost of ownership are also discussed. The main thrust of the article is to present an eight stage framework for total cost of ownership implementation. This framework was developed based on case studies of seven firms which use total cost of ownership in purchasing. The framework includes a number of decisions that firms considering total cost of ownership must face, and a discussion of how these decisions were resolved by some of the case study companies. The paper concludes with an evaluation of the framework, and some suggestions for future total cost of ownership research directions.