Performance Evaluation and Improvement via Mathematical Modeling: Total Cost of Ownership

A significant amount of costs in the process of supply chain assessment and management is often overlooked when applying traditional ways of evaluation and supplier choice, and it is essential to provide a comprehensive approach that can take into account all costs associated with a service or product. To this end, the concept of "Total Cost of Ownership" is considered as an appropriate criterion for performance assessment and an optimal method for productivity enhancement. It is a philosophy and a purchase device that seeks to delineate the actual purchase cost of a product or a particular service from a specific, and thereby, enhance productivity by reducing viable costs of an investment or purchase. Therefore, the current study sought to explore multiple dimensions of total cost of ownership in selection and evaluation of organizational suppliers. It further aimed to present a mathematical model that can offer an indicator to evaluate the supplier's performance based on each aspect of total cost of ownership making it possible for organizational decision makers to compare each of their suppliers from different perspectives and choose the most efficient and suitable supplier while keeping the cost to an absolute minimum. The proposed index was finally described based on a sample from an automobile manufacturing company.