TOTAL COST OF OWNERSHIP: STUDY ON THE APPLICATION IN PRODUCTION INPUT PURCHASE

Abstract

This research aimed to identify the main features of the Total Cost of Ownership (TCO) application in the production inputs acquisition process. A dyadic approach, a single case study was conducted on the purchase of three strategic inputs required to produce soybean oil in an agroindustry company and together with one of its direct suppliers. We collected data in semi-structured interviews, document analysis, and direct observation, and then were submitted to Content Analysis. The results showed that the purchasing company applies TCO to the strategic inputs as long as it maintains a close relationship with its suppliers. TCO is mainly used to renegotiate suppliers’ prices and manage costs. Moreover, there are cost drivers and common costs to all inputs in the TCO models for input purchase. However, some costs are specific to each purchase. In addition, suppliers’ TCO role is to provide information about costs and propose strategies and innovations that reduce costs and improve quality. As a result, we found that long-term contracts, investments in specific assets, and the frequency of transactions reduce the risk of opportunism and uncertainties in the relationship, as provided by Transaction Cost Economics (ECT), as well as favoring detailed information sharing. We concluded that the TCO is an important artifact for knowing the total cost of the inputs; however, some aspects, such as the development of close relationships and the sharing of detailed information, mainly of costs, must be considered for its effective application.