What does total cost encompass in procurement practice?

Total cost in procurement practice refers to the comprehensive view of all expenses associated with acquiring and maintaining a product throughout its entire lifecycle. This includes not just the purchase price, but also costs related to procurement, transportation, handling, storage, insurance, maintenance, operation, and eventual disposal of the product.

By considering all these various costs, organizations can make more informed decisions that lead to better budgeting and resource allocation. Focusing solely on the purchase price would neglect significant expenditures that can impact the overall value and cost-effectiveness of the procurement process. Therefore, the correct understanding of total cost is essential for effective cost management and strategic sourcing within the procurement function.