However TCO provides many benefits that are documented in the literature27811

However tco provides many benefits that are

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However, TCO provides many benefits that are documented in the literature[2,7,8,11] and confirmed by case studies[12]. Some of the primary benefits of adopting a TCO approach are that TCO analysis: provides a consistent supplier evaluation tool, improving the value of supplier performance comparisons among suppliers and over time; helps clarify and define supplier performance expectations both in the firm and for the supplier;
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IJPDLM 25,8 8 provides a focus and sets priorities regarding the areas in which supplier performance would be most beneficial (supports continuous improvement), creating major opportunities for cost savings; improves the purchaser’s understanding of supplier performance issues and cost structure; provides excellent data for negotiations; provides an opportunity to justify higher initial prices based on better quality/lower total costs in the long run; provides a long-term purchasing orientation by emphasizing the TCO rather than just price. This list of benefits is by no means comprehensive. It provides a summary of some of the key benefits of adopting a TCO philosophy in purchasing. It is important to note that none of the organizations studied use TCO for all purchases. The use of TCO is reserved for certain items/services where the organization feels that such analysis can provide greatest benefit. Before proceeding with the research results, the next section will discuss the research methodology used. Methodology This research involved case studies of 11 organizations which were actively involved with and used formalized TCO models in purchasing. A formalized model is defined as a written, documented method for determining the total costs associated with the acquisition and subsequent use and disposition of a given item/service from a given supplier. As previously mentioned, much of the current literature on TCO is anecdotal or descriptive in nature[17,23], or involves only one case study firm[6,8]. Thus, because of the limited amount of data available on TCO models in the literature, this research is exploratory in nature. It seeks to describe and understand TCO analysis in depth, rather than provide a broad but limited picture of TCO practices among a large population of organizations. Interview approach The interview guide used in the research was developed based on the research questions of interest and combined with a review of the relevant literature. Both academics and purchasing practitioners reviewed the interview guide for content and clarity. The interview guide was also pre-tested with one firm. The interview guide was modified based on these inputs. Sample selection Owing to the relatively limited availability of firms which actively use TCO in purchasing, the case study firms in this research are not a random sample. This purposive sample was developed based on the author’s knowledge, a review of the literature and recommendations of purchasing practitioners. Each case
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