The use of total cost of ownership for strategic procurement: a company-wide management information system

Abstract

We present a general company-wide management information system for defining procurement strategies. We believe that existing practices for determining purchasing strategies can be improved and a new approach developed. The system uses total cost of ownership information. We argue that mathematical programming models should be used for exploiting this information, when evaluating the firm's strategic procurement options. As an example, we show how we have successfully applied our approach to develop a decision support system at Usinor, a European multinational steel company.

Keywords:

• decision support systems
• purchasing
• integer programming
• total cost of ownership

Acknowledgements

We acknowledge the helpful observations and suggestions of the anonymous referees. Filip Roodhooft holds the Deloitte consulting Chair in Purchasing and Supply Management at the Katholieke Universiteit Leuven, Belgium. This research is realized within Project OT99/6 of the Research Fund of the Katholieke Universiteit Leuven and Project G.0261.00 of the Fund for Scientific Research—Flanders.