A data envelopment analysis approach based on total cost of ownership for supplier selection

Abstract

Purpose

Management accounting contains several techniques such as total cost of ownership (TCO) that provide necessary information related to supply issues for supplier evaluation and selection purposes. However, it is not clear whether these techniques should be applied along with other evaluation approaches. This paper aims to examine such kind of applicability to provide some insight about alternative solutions, which can be considered as well.

Design/methodology/approach

This paper proposes and demonstrates the application of data envelopment analysis (DEA) approach in evaluating the overall performances of suppliers on multiple criteria based on TCO concept and simulated data in a hypothetical firm and with a strategic orientation of being able to reduce TCO by identifying benchmark values.

Findings

It is shown that management accounting techniques should be used in a holistic and comprehensive way and complemented by other evaluation approach in the supplier selection decision‐support framework.

Originality/value

The overall value of this study can be said to be a contribution to enhancing knowledge about management accounting and supplier selection. The results offer important theoretical and managerial implications and future research directions for purchasing as well as management accounting.

Citation

Mohammady Garfamy, R. (2006), "A data envelopment analysis approach based on total cost of ownership for supplier selection", Journal of Enterprise Information Management, Vol. 19 No. 6, pp. 662-678. https://doi.org/10.1108/17410390610708526