Using total cost of ownership in supplier selection

Abstract

Over the past decade, procurement has gained in importance and popularity as one of the most critical activities that add to companies’ competitive advantage in the highly complex global marketplace. Specifically, the key value-added process within procurement is supplier selection. The purpose of this study is to investigate the role of total cost of ownership in supplier selection via qualitative research with a case study. The thesis’ theoretical portion was formulated with three main components – supplier evaluation, supplier involvement, and total cost of ownership – to portray the underlying conceptual framework of this study. The empirical part was conducted at an automotive manufacture company. Data for this research were collected from observations, document reference, and semi-structured interviews with the participation of the case company’s purchasing personnel. The findings suggest that albeit having enormous potential, total cost of ownership implementation also entails great complexity and high maintenance. Nevertheless, successful integration of total cost of ownership with companies’ purchasing strategy can bring plenty of benefits, the most prominent of which is effective and appropriate supplier selection.