Define total cost of ownership in procurement.

• A. End-of-life costs only
• B. Carrying costs only
• C. Purchase price only
• D. All costs associated with acquiring, owning, and disposing of a purchased item over its life cycle, including purchase price, carrying costs, ordering costs, shortage costs, and end-of-life

Answer: (D)

Total cost of ownership in procurement means considering every cost tied to a purchased item over its entire life cycle, from acquisition to disposal. It isn’t limited to the price paid upfront. It includes carrying costs (inventory holding, capital costs, insurance, obsolescence), ordering costs (procurement processing and handling), shortage costs (stockouts and expedited replenishment), and end-of-life costs (disposal or recycling). By summing these components, you capture the true economic impact of a purchasing decision, not just the purchase price. That’s why the description that covers all costs across the life cycle best defines total cost of ownership.