The advantages/disadvantages of the total cost of ownership.

Advantages: 1)Take all cost elements into consideration, because it extends the procurement to the whole life cycle of product within a firm. 2)Reflects the real cost of the purchasing rather than the pure acquisition. 3)It helps to define a rational purchasing policy for the buyer, for instance, how to allocate the purchasing volume, and to whom, and etc. 4)It can be a tool to evaluate outsourcing deals. 5)Can be used in negotiations with suppliers, by …

…Use TCO for products with long life cycle within the organization e.g. PC's, machines. Cannot be applied to: 6)Lack of negotiation power, fro instance, with monopoly supplier; if supply is behind demanding, and etc. 7)Buy service from banking, insurance, and consulting. 8)Company with very simple process, e.g. pure re-selling and wholesale. 9)Companies spend a small proportion of total spending on purchasing. 10)Too competitive internal environment, for instance, each department has an individual budget.