Reliable Estimation of Suppliers’ Total Cost of Ownership: An Imprecise Data Envelopment Analysis Model with Common Weights

A. Shabani, Franco Visani, Paolo Barberi, W.E.H. Dullaert, D. Vigo

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

Total cost of ownership (TCO) is a management accounting technique that evaluates the total cost of a business partnership using a time-consuming activity-based costing procedure. Studies have suggested that TCO-based data envelopment analysis (DEA) can effectively estimate the results of TCO with substantially less effort and time; however, its adoption in practice is limited due to certain shortcomings. First, managers struggle to understand and accept the uncommon weighting schemes of existing TCO-based DEA models because traditional TCO analyses require a common set of weights. Second, both the traditional TCO approach and TCO-based DEA models are designed to handle precise data, whereas TCO analyses often involve imprecise data from conflicting data sources and estimations.

To address the managerial and technical issues of handling weighting schemes and imprecise data, this paper proposes a novel TCO-based model: common set of weights imprecise DEA (CSW-IDEA). We validate the proposed methodology using real-life datasets from 175 suppliers that serve five key components to two multinational mechanical manufacturers. For both precise data and imprecise data, the proposed CSW-IDEA reliably approximates traditional TCO calculations significantly better than existing TCO-based DEA. The cost savings that can be theoretically generated by applying the CSW-IDEA approach are similar to the cost savings estimated by the traditional TCO approach.
Original languageEnglish
Pages (from-to)1-32
JournalOmega
DOIs
Publication statusAccepted/In press - 10 Aug 2018

Fingerprint

Total cost of ownership
Data envelopment analysis
Suppliers
Weighting
Cost savings
Multinationals
Activity-based costing
Management accounting
Costs
Data sources
Managers
Methodology

Keywords

  • Total cost of ownership
  • Data envelopment analysis
  • Supplier evaluation
  • Imprecise data
  • Common set of weights

Cite this

@article{1d304781ea1d474299f012faae6fc1e8,
title = "Reliable Estimation of Suppliers’ Total Cost of Ownership: An Imprecise Data Envelopment Analysis Model with Common Weights",
abstract = "Total cost of ownership (TCO) is a management accounting technique that evaluates the total cost of a business partnership using a time-consuming activity-based costing procedure. Studies have suggested that TCO-based data envelopment analysis (DEA) can effectively estimate the results of TCO with substantially less effort and time; however, its adoption in practice is limited due to certain shortcomings. First, managers struggle to understand and accept the uncommon weighting schemes of existing TCO-based DEA models because traditional TCO analyses require a common set of weights. Second, both the traditional TCO approach and TCO-based DEA models are designed to handle precise data, whereas TCO analyses often involve imprecise data from conflicting data sources and estimations.To address the managerial and technical issues of handling weighting schemes and imprecise data, this paper proposes a novel TCO-based model: common set of weights imprecise DEA (CSW-IDEA). We validate the proposed methodology using real-life datasets from 175 suppliers that serve five key components to two multinational mechanical manufacturers. For both precise data and imprecise data, the proposed CSW-IDEA reliably approximates traditional TCO calculations significantly better than existing TCO-based DEA. The cost savings that can be theoretically generated by applying the CSW-IDEA approach are similar to the cost savings estimated by the traditional TCO approach.",
keywords = "Total cost of ownership, Data envelopment analysis, Supplier evaluation, Imprecise data, Common set of weights",
author = "A. Shabani and Franco Visani and Paolo Barberi and W.E.H. Dullaert and D. Vigo",
year = "2018",
month = "8",
day = "10",
doi = "10.1016/j.omega.2018.08.002",
language = "English",
pages = "1--32",
journal = "Omega",
issn = "0305-0483",
publisher = "Elsevier BV",

}

Reliable Estimation of Suppliers’ Total Cost of Ownership: An Imprecise Data Envelopment Analysis Model with Common Weights. / Shabani, A.; Visani, Franco; Barberi, Paolo; Dullaert, W.E.H.; Vigo, D.

In: Omega, 10.08.2018, p. 1-32.

Research output: Contribution to JournalArticleAcademicpeer-review

TY - JOUR

T1 - Reliable Estimation of Suppliers’ Total Cost of Ownership: An Imprecise Data Envelopment Analysis Model with Common Weights

AU - Shabani, A.

AU - Visani, Franco

AU - Barberi, Paolo

AU - Dullaert, W.E.H.

AU - Vigo, D.

PY - 2018/8/10

Y1 - 2018/8/10

N2 - Total cost of ownership (TCO) is a management accounting technique that evaluates the total cost of a business partnership using a time-consuming activity-based costing procedure. Studies have suggested that TCO-based data envelopment analysis (DEA) can effectively estimate the results of TCO with substantially less effort and time; however, its adoption in practice is limited due to certain shortcomings. First, managers struggle to understand and accept the uncommon weighting schemes of existing TCO-based DEA models because traditional TCO analyses require a common set of weights. Second, both the traditional TCO approach and TCO-based DEA models are designed to handle precise data, whereas TCO analyses often involve imprecise data from conflicting data sources and estimations.To address the managerial and technical issues of handling weighting schemes and imprecise data, this paper proposes a novel TCO-based model: common set of weights imprecise DEA (CSW-IDEA). We validate the proposed methodology using real-life datasets from 175 suppliers that serve five key components to two multinational mechanical manufacturers. For both precise data and imprecise data, the proposed CSW-IDEA reliably approximates traditional TCO calculations significantly better than existing TCO-based DEA. The cost savings that can be theoretically generated by applying the CSW-IDEA approach are similar to the cost savings estimated by the traditional TCO approach.

AB - Total cost of ownership (TCO) is a management accounting technique that evaluates the total cost of a business partnership using a time-consuming activity-based costing procedure. Studies have suggested that TCO-based data envelopment analysis (DEA) can effectively estimate the results of TCO with substantially less effort and time; however, its adoption in practice is limited due to certain shortcomings. First, managers struggle to understand and accept the uncommon weighting schemes of existing TCO-based DEA models because traditional TCO analyses require a common set of weights. Second, both the traditional TCO approach and TCO-based DEA models are designed to handle precise data, whereas TCO analyses often involve imprecise data from conflicting data sources and estimations.To address the managerial and technical issues of handling weighting schemes and imprecise data, this paper proposes a novel TCO-based model: common set of weights imprecise DEA (CSW-IDEA). We validate the proposed methodology using real-life datasets from 175 suppliers that serve five key components to two multinational mechanical manufacturers. For both precise data and imprecise data, the proposed CSW-IDEA reliably approximates traditional TCO calculations significantly better than existing TCO-based DEA. The cost savings that can be theoretically generated by applying the CSW-IDEA approach are similar to the cost savings estimated by the traditional TCO approach.

KW - Total cost of ownership

KW - Data envelopment analysis

KW - Supplier evaluation

KW - Imprecise data

KW - Common set of weights

U2 - 10.1016/j.omega.2018.08.002

DO - 10.1016/j.omega.2018.08.002

M3 - Article

SP - 1

EP - 32

JO - Omega

JF - Omega

SN - 0305-0483

ER -