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1 – 10 of over 43000Total 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…
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.
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Total cost of ownership is a methodology and philosophy which looksbeyond the price of a purchase to include many other purchaserelatedcosts. This approach has become increasingly…
Abstract
Total cost of ownership is a methodology and philosophy which looks beyond the price of a purchase to include many other purchaserelated costs. This approach has become increasingly important as organizations look for ways to better understand and manage their costs. Examines case studies of 11 firms which use total cost of ownership concepts in purchasing. Based on the case study data and the literature, barriers and benefits associated with the total cost of ownership approach are discussed. The total cost of ownership models used by the case study firms are classified by type as dollar‐based or value‐based, and an example of each is shown. The total cost of ownership models are then further classified by their primary usage: supplier selection or supplier evaluation. This cross classification reveals a strong relationship between model type and model usage. Concludes with a comparison of the models, recommendations for practitioners and a discussion of future research directions.
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Sameer Kumar, Qui S. Hong and Linae N. Haggerty
Numerous research articles and industry reports are currently available that deal with global sourcing, however, few articles and reports can be specifically found on sourcing…
Abstract
Purpose
Numerous research articles and industry reports are currently available that deal with global sourcing, however, few articles and reports can be specifically found on sourcing packaging materials in the consumer packaged food (CPF) industry. The purpose of this paper is to understand and develop the supplier selection process and overall cost modeling that facilitates the selection of a high‐quality global supplier for low‐cost packaging materials used in large quantities for CPF products.
Design/methodology/approach
To gain information relating to packaging material sourcing, a comprehensive literature search was conducted. Additionally, interviews with packaging material sourcing managers and directors were performed at a major global CPF products manufacturer. Knowledge gained from literature, industry interviews and available business data was used to develop a generic strategic outsourcing model and a closed loop business framework for selection of global suppliers of packaging material. This framework utilizes the proposed total cost of ownership model for global sourcing and weighted qualitative criteria matrix demonstrating how it is used in global supplier selection.
Findings
The results of this study show a standardized supplier selection process and the total cost of ownership model for a CPF manufacturer which incorporates the different logistic costs such as tariffs, duties, inventory carrying levels and cost of quality. These two models are then merged into a selection matrix to determine with which supplier to enter into a long‐term supply relationship.
Originality/value
The paper combines both the relevant closed loop supplier selection modeling framework and the total cost of ownership model in the selection of supplier for low‐cost high‐volume CPF materials. It adds rigor regarding cost of ownership and emphasizes the need for a strategic rationale when entering into long‐term global supply relationships between CPF products manufacturers and packaging material suppliers.
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Marc Wouters and Susana Morales
To provide an overview of research published in the management accounting literature on methods for cost management in new product development, such as a target costing, life…
Abstract
Purpose
To provide an overview of research published in the management accounting literature on methods for cost management in new product development, such as a target costing, life cycle costing, component commonality, and modular design.
Methodology/approach
The structured literature search covered papers about 15 different cost management methods published in 40 journals in the period 1990–2013.
Findings
The search yielded a sample of 113 different papers. Many contained information about more than one method, and this yielded 149 references to specific methods. The number of references varied strongly per cost management method and per journal. Target costing has received by far the most attention in the publications in our sample; modular design, component commonality, and life cycle costing were ranked second and joint third. Most references were published in Management Science; Management Accounting Research; and Accounting, Organizations and Society. The results were strongly influenced by Management Science and Decision Science, because cost management methods with an engineering background were published above average in these two journals (design for manufacturing, component commonality, modular design, and product platforms) while other topics were published below average in these two journals.
Research Limitations/Implications
The scope of this review is accounting research. Future work could review the research on cost management methods in new product development published outside accounting.
Originality/value
The paper centers on methods for cost management, which complements reviews that focused on theoretical constructs of management accounting information and its use.
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Khurrum S. Bhutta and Faizul Huq
Supplier selection and evaluation are arguably one of the most critical functions for the success of an organization. Several approaches exist in the literature to objectively…
Abstract
Supplier selection and evaluation are arguably one of the most critical functions for the success of an organization. Several approaches exist in the literature to objectively evaluate suppliers, including analytic hierarchy process and total cost of ownership. Analytic hierarchy process provides a framework to cope with multiple criteria situations involving supplier selection, while the total cost of ownership is a methodology and philosophy, which look beyond just the price of a purchase to better understand and manage costs in selecting and maintaining relationships with suppliers. This paper illustrates the two approaches and provides a comparison.
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Gabriela Herrera Piscopo, Wesley Johnston and Dan N. Bellenger
This paper explores the use of the total cost of ownership (TCO) approach from the business marketing perspective. TCO provides a method to estimate all cost associated with the…
Abstract
This paper explores the use of the total cost of ownership (TCO) approach from the business marketing perspective. TCO provides a method to estimate all cost associated with the acquisition, use, and disposal of a good or service over the lifetime of the purchase. Organizational buyers can employ TCO analysis to evaluate alternative offerings from suppliers, to assess ongoing supplier performance, and to drive process improvement. Sellers can use TCO models to measure, document, and communicate the value that their offering represents to a customer in the way of lower costs relative to the next best alternative. TCO analysis can be a powerful selling tool to demonstrate concrete customer value creation for alternatives that deliver comparable benefits. The execution of a TCO analysis requires experts from both the buyer and seller organizations to work closely together in mapping and modeling the target customer's application. Ideally, the sales representative leads the process in which both parties collaborate. The process contributes to the strengthening of trusting, long-term buyer–seller relationships.
Marc Wouters, Susana Morales, Sven Grollmuss and Michael Scheer
The paper provides an overview of research published in the innovation and operations management (IOM) literature on 15 methods for cost management in new product development, and…
Abstract
Purpose
The paper provides an overview of research published in the innovation and operations management (IOM) literature on 15 methods for cost management in new product development, and it provides a comparison to an earlier review of the management accounting (MA) literature (Wouters & Morales, 2014).
Methodology/approach
This structured literature search covers papers published in 23 journals in IOM in the period 1990–2014.
Findings
The search yielded a sample of 208 unique papers with 275 results (one paper could refer to multiple cost management methods). The top 3 methods are modular design, component commonality, and product platforms, with 115 results (42%) together. In the MA literature, these three methods accounted for 29%, but target costing was the most researched cost management method by far (26%). Simulation is the most frequently used research method in the IOM literature, whereas this was averagely used in the MA literature; qualitative studies were the most frequently used research method in the MA literature, whereas this was averagely used in the IOM literature. We found a lot of papers presenting practical approaches or decision models as a further development of a particular cost management method, which is a clear difference from the MA literature.
Research limitations/implications
This review focused on the same cost management methods, and future research could also consider other cost management methods which are likely to be more important in the IOM literature compared to the MA literature. Future research could also investigate innovative cost management practices in more detail through longitudinal case studies.
Originality/value
This review of research on methods for cost management published outside the MA literature provides an overview for MA researchers. It highlights key differences between both literatures in their research of the same cost management methods.
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Debra Harris and Lori Fitzgerald
The business case for facility expenditures is grounded in the knowledge that life-cycle economics is significant to the continued viability of the facility. The aim of this study…
Abstract
Purpose
The business case for facility expenditures is grounded in the knowledge that life-cycle economics is significant to the continued viability of the facility. The aim of this study is to develop an algorithm for life-cycle cost analysis (LCCA) and evaluate flooring products to inform decision makers about the long-term cost of ownership.
Design/methodology/approach
The protocol for executing an LCCA is defined by the National Institute of Standards and Technology, including defining the problem, identifying feasible alternatives and establishing common assumptions and parameters, as well as acquiring financial information. Data were provided by an independent third-party source.
Findings
The results of this study are twofold: assess functionally equivalent flooring alternatives to determine the best financial value and develop a replicable protocol and algorithm for LCCA. The study found that modular carpet was the best financial solution. As a tool for decision makers, this LCCA informs asset management about the long-term cost of ownership, providing a protocol for making practical, informed decisions for the lowest cost solution for functionally equivalent alternatives.
Research limitations/implications
Projecting LCCA beyond 15 years may have limited value based on potential changes in the financial climate. Further research should focus on the implications of changes in the discount rate over time and testing the algorithm on other building systems.
Practical implications
Maintenance costs are considerable when compared to initial cost of flooring. Equipment costs have a significant impact on long-term cost of ownership. Using LCCA to inform specifications and to determine the best solution for a building system such as flooring provides an evidence-based process for building design and facility management.
Social implications
Life-cycle costs have a significant impact on the financial health of an organization. Using LCCA to make informed decisions about facility design and specifications may contribute to increased financial stability and resources to benefit the organization’s long term goals.
Originality/value
This study contributes an algorithm instrument for buildings and building systems. The flooring tested with this protocol provides evidence to inform flooring selection based on lowest cost while considering other factors that inform appropriate selection of flooring materials.
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Frederik Zachariassen and Jan Stentoft Arlbjørn
The purpose of this paper is to develop a differentiated approach to the cost management system of total cost of ownership (TCO), a system based on cost data. Existing TCO‐related…
Abstract
Purpose
The purpose of this paper is to develop a differentiated approach to the cost management system of total cost of ownership (TCO), a system based on cost data. Existing TCO‐related literature has investigated the tool from a focal buyer perspective but has consequently neglected to study TCO from an inter‐organisational perspective.
Design/methodology/approach
An explorative single case‐study approach is used, involving a large, industrial Danish manufacturing company. Interviews were conducted with relevant representatives from both the purchasing division and a range of the division's suppliers and observations made.
Findings
This paper indicates that a differentiated approach to TCO might be necessary, as suppliers might react negatively to the focal company presenting TCO data in negotiations. A matrix is proposed involving two dimensions: the nature of the relationship and the complexity of cost drivers.
Research limitations/implications
This study involves a single case study and is therefore not capable of enumerating frequencies. Future research should test the applicability of the findings in other spatial contexts.
Practical implications
Industrial managers should be aware that a differentiated approach to TCO is capable of solving problems pertaining to the current TCO “one‐size‐fits‐all” approach.
Originality/value
This is the first paper, known to the authors, to investigate the TCO concept from an inter‐organisational perspective.
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Marc Walterbusch, Benedikt Martens and Frank Teuteberg
Start‐up companies in particular can benefit from cloud computing services, since frequently they do not operate an internal IT infrastructure. The purpose of this paper is to…
Abstract
Purpose
Start‐up companies in particular can benefit from cloud computing services, since frequently they do not operate an internal IT infrastructure. The purpose of this paper is to present a total cost of ownership (TCO) approach for cloud computing services.
Design/methodology/approach
The authors applied a multi‐method approach (systematic literature review, analysis of real cloud computing services, expert interviews, case study) for the development and evaluation of a formal mathematical TCO model.
Findings
It was found that decision processes in cloud computing are conducted ad hoc and lack systematic methods. The presented method raises the awareness of indirect and hidden costs in cloud computing.
Research limitations/implications
Some restrictive assumptions were made. For instance, cost types that focus on an existing internal IT infrastructure were hidden. Future research can combine risk and security aspects by means of a TCO approach. Additionally, benefits management in cloud computing is another new research field that can, for instance, be explored by means of cost‐benefit analyses.
Practical implications
The analysis of relevant cost types and factors of cloud computing services is an important pillar of decision making in cloud computing. The software tool allows for an easy application of the TCO model with reasonable effort.
Originality/value
The paper provides an evaluated mathematical model for the calculation of the TCO of cloud computing services. With this tool, decision makers are able to decide whether outsourcing into the cloud is monetarily attractive; to be more specific, whether the costs associated with cloud computing services are lower than with a pre‐existing infrastructure.
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