Certified Supply Chain Professional (CSCP) Practice Exam

What does total cost of ownership encompass?

1. Only the purchase price

2. The sum of costs associated with every activity in the supply stream

3. Costs related solely to logistics

4. Only direct production expenses

The correct answer is: The sum of costs associated with every activity in the supply stream

Total cost of ownership (TCO) is a comprehensive assessment of all costs associated with owning and using a product or service throughout its lifecycle. This concept goes beyond just the initial purchase price and includes a multitude of expenses that can arise in the supply chain throughout the course of a product's life. When considering total cost of ownership, it encompasses not only the purchase price but also a variety of costs such as transportation, warehousing, maintenance, disposal, and operational costs. By looking at the sum of costs associated with every activity in the supply stream, organizations can make more informed decisions that consider both immediate and long-term financial implications. This wider lens allows companies to identify areas for potential savings and improvements in efficiency. The other options are limited in scope. The purchase price alone fails to capture the broader financial picture; costs related solely to logistics ignore important aspects of ownership such as maintenance and after-sale support; and focusing only on direct production expenses excludes numerous other relevant costs that might arise in the supply chain. Thus, the total cost of ownership provides a vital framework for evaluating the true financial impact of procurement and operational decisions.