Total Cost of Ownership: Elements and Implementation

While total cost of ownership concepts are widely discussed, in practice most firms do not utilize the total cost concept in purchasing. This article uses findings from studies of nine firms that use total cost of ownership to define the total cost of ownership concept and benefits. A framework for classifying cost elements is developed. The article concludes with a discussion of key total cost of ownership implementation issues, and explores two approaches to implementation of total cost of ownership concepts in purchasing.