Total Cost of Ownership (TCO) SCM
FINAL EXAM QUESTIONS & ANSWERS
Total Cost of Ownership - ANSWERSTotal cost includes the expected and unexpected elements
that increase the unit cost of a good, service or piece of equipment.
Measurement Models - ANSWERScategorical, weighted point, cost based
Total Cost Models - ANSWERSthree important models
Total Landed Cost Models - ANSWERSUse when evaluating suppliers prior to making purchase
decisions for materials and services. Landed Cost is the sum of all costs associated with
obtaining a product. *(international shipments). Potential issue involves whether to include only
costs that the buyer incurs or all the costs from origin to destination. (spreadsheet software is
ideal for developing toal landed cost models)
Supplier Performance Index Models (SPI) - ANSWERSAttempt to capture the true cost of doing
business with supplier on continuous basis in the form of an index or ratio. It assumes that any
quality or other infraction committed by a supplier during the course of business increases the
total cost. built in baseline of 1 that has a bias against suppliers that deliver a lower value. Q
ADJUSTMENT FACTOR
SPI = (cost of material + nonconformance costs)/cost of material
Q = (value of deliveries/# of deliveries)/average $ shipment
(Total Value of Deliveries + (non conform costs *Q))/total value deliv. = adjusted SPI
1.20 20 cents more to do business/ the true cost of doing business with a supplier
FINAL EXAM QUESTIONS & ANSWERS
Total Cost of Ownership - ANSWERSTotal cost includes the expected and unexpected elements
that increase the unit cost of a good, service or piece of equipment.
Measurement Models - ANSWERScategorical, weighted point, cost based
Total Cost Models - ANSWERSthree important models
Total Landed Cost Models - ANSWERSUse when evaluating suppliers prior to making purchase
decisions for materials and services. Landed Cost is the sum of all costs associated with
obtaining a product. *(international shipments). Potential issue involves whether to include only
costs that the buyer incurs or all the costs from origin to destination. (spreadsheet software is
ideal for developing toal landed cost models)
Supplier Performance Index Models (SPI) - ANSWERSAttempt to capture the true cost of doing
business with supplier on continuous basis in the form of an index or ratio. It assumes that any
quality or other infraction committed by a supplier during the course of business increases the
total cost. built in baseline of 1 that has a bias against suppliers that deliver a lower value. Q
ADJUSTMENT FACTOR
SPI = (cost of material + nonconformance costs)/cost of material
Q = (value of deliveries/# of deliveries)/average $ shipment
(Total Value of Deliveries + (non conform costs *Q))/total value deliv. = adjusted SPI
1.20 20 cents more to do business/ the true cost of doing business with a supplier
