Getting What You Pay For? - Total Cost of Ownership Model

Author(s):

Sandra Barkman, C.P.M.
Sandra Barkman, C.P.M., Procurement Agent, The University of Michigan, 734/615-5961; sbarkman@umich.edu
Bryon S. Marks, MBA
Bryon S. Marks, MBA, Global Supply Chain Director, Pall Corporation, 734/913-6430; bryon_marks@pall.com

91st Annual International Conference Proceedings - 2006 - Minneapolis, MN
Abstract

"Are you getting what you pay for?" This Total Cost of Ownership model calculates the multiple variables that determine total cost. By using the tool when sourcing a requirement, the supply professional takes steps to mitigate risks that translate into increased cost. The tool applies weighted values to such elements as price, logistics, quality, risk, maintenance and repairs, and administrative and financing factors to determine a "total cost" for the requirement. The tool provides a format to calculate the factors used in a Total Cost of Ownership decision. The weighted cost factors consider the importance and degree of risk involved in the purchase. Individuals should understand their own organization's needs to define the amount of weight (risk) assigned to each variable. This model is also intended to inspire thought on how your organization can add/subtract elements to determine your own Total Cost of Ownership model.

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