INTEGRATING LIFE-CYCLE COST AND COST-OF-OWNERSHIP IN THE COMMERCIAL SECTOR

In the commercial sector, it is not inconceivable that a design optimized from the manufacturer's life-cycle cost (LCC) perspective may not be optimum from the customer's LCC, or cost-of-ownership (COO) viewpoint. However, as shown in Figure 1, the goal is to close the gap; i.e., to optimize the product design and support systems such that the gap between the manufacturer's LCC and the customer's COO is minimal. Therefore, the objective is to create products which have the lowest LCC to both the the manufacturer and the customer. This paper describes two models, the LCC model and the COO model, and their use as an aid in meeting this objective. [GRAPHICS] First, the what and why of the LCC analysis process are unfolded, and the objectives are defined. An overview of the process is provided. The model is described in terms of the major cost elements, as well as the various model variables (parameters). The use of the results as a planning tool in the decision-making process is emphasized. Sample baseline runs are provided to demonstrate the implementation and utility of the model, and illustrate the reporting formats. Then, the COO model is presented to provide the customer perspective of LCC. The utility of the model in helping to leverage product sales and services is explained. An overview of the COO model is also furnished in terms of mechanization, input data, and application. Sample runs and trade-offs are made to illustrate the relative COO for varying levels of service maintenance contract options. It is concluded that the implementation of LCC and COO analysis techniques in the commercial sector has some very powerful uses. In the development stage, LCC analysis can help the manufacturer make proper decisions regarding product design, manufacture, and service. In the marketing and sales stage, the COO analysis can help convince the customer that the overall LCC for the product and services under consideration is attractive, and the purchase should be made. Finally, LCC and COO can, and when properly balanced, result in a "win-win" situation for both the manufacturer and customer.