Exploring a differentiated approach to total cost of ownership

Purpose – The purpose of this paper is to develop a differentiated approach to the cost management system of total cost of ownership (TCO), a system based on cost data. Existing TCO‐related literature has investigated the tool from a focal buyer perspective but has consequently neglected to study TCO from an inter‐organisational perspective. Design/methodology/approach – An explorative single case‐study approach is used, involving a large, industrial Danish manufacturing company. Interviews were conducted with relevant representatives from both the purchasing division and a range of the division's suppliers and observations made. Findings – This paper indicates that a differentiated approach to TCO might be necessary, as suppliers might react negatively to the focal company presenting TCO data in negotiations. A matrix is proposed involving two dimensions: the nature of the relationship and the complexity of cost drivers. Research limitations/implications – This study involves a single case study and is therefore not capable of enumerating frequencies. Future research should test the applicability of the findings in other spatial contexts. Practical implications – Industrial managers should be aware that a differentiated approach to TCO is capable of solving problems pertaining to the current TCO “one‐size‐fits‐all” approach. Originality/value – This is the first paper, known to the authors, to investigate the TCO concept from an inter‐organisational perspective.