Most retailers only think about the upfront cost when it comes to purchasing equipment. While the initial cost of the equipment may be less, the TCO and equipment maintenance costs can be much higher.
Total Cost of Ownership analysis is simply a financial estimate of all costs – direct and indirect – of acquiring, commissioning, operating, maintaining and disposing of a product or system for a specified period of time. The analysis can be used to effectively compare alternative approaches, and demonstrates the effort to analyze and optimize total costs of ownership, instead of acquisition costs alone, which is likely to yield a very positive return on investment.
One can understand these costs by using this model for almost any class of equipment:
TCO = Ca + Cc + Co +Cm + Cp + Cd.
= Ca + Cc + Co +Cm + Cp + Cd
cost minus any reclamation value.
Ca=Cost of Acquisition—includes the cost of engineering, procurement, equipment cost, auxiliary equipment cost, inspections and documentation.
Cc=Cost of Commissioning—includes the cost of construction, testing, training and technical support.
Cp=Cost of Production—includes production losses, quality cost, environmental cost and cost of redundancy.
Cm=Cost of Maintenance—includes maintenance personnel, maintenance facility cost, test equipment, maintenance support and handling cost, maintenance spares and repair parts.
Co=Cost of Operation—includes energy, operating personnel, facility costs, support and handling for raw materials.
PRSM Sourcing Committee