USING TOTAL COST OF OWNERSHIP AS A METHOD FOR IDENTIFICATION OF INTERNAL PROBLEMS IN PURCHASE AREA – CASE STUDY

Abstract

Total Cost of Ownership (TCO) concept is a quite widely described method for selection and evaluation of suppliers. The literature on the subject brings a number of purchasing analyses in field of IT equipment, means of transportation or industrial appliances. This time the authors present a broader approach that goes beyond to date analyses. They focus on underestimated facet of the concept. A matter of interest is a discussion on internal processes in enterprise that impinge on TCO’s deterioration. The aim of this paper is an attempt to prove that TCO can also be a measurable tool for identification of internal problems of enterprise. In this way its silo nature is shown and implications of lack of holistic approach are mentioned. This article presents a list of chosen processes’ disruptions and their impact on TCO increase, e.g. additional transaction costs in an audited company. As demonstrated in the paper, the organisation itself can cause events that make its financial result worse. Thus, a few tools to identify and eliminate those causes have been introduced, creating a controlling mechanism. Understanding of this approach testifies to a level of organisation’s maturity considering not only purchasing but also planning of entire business. Purchasing department itself emphasizes its strategic role. Relevant limitation is a way of financial settlement of core activity. Calculation of production costs takes into account only used materials and components. However, an excessive or redundant inventory becomes usually a cost at a later time. Barrier can be a wage regulation depending on profit margin instead of Activity Based Costing approach. Future research should focus on enlightening the TCO’s idea and implications of its non-use.

Key words: TCO, identification of purchases problems, purchasing strategy, internal cost approach