Exploring a differentiated approach to total cost of ownership

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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