To the prospective feeding system buyer the purpose of Total Cost of Ownership analysis should be to direct and support decision-making.
This simple mission statement holds the potential to streamline TCO analysis and make it fast, fair, focused and feasible. The following shortcuts offer pointers on how to identify, isolate and include the many real and intangible costs of feeding system ownership, and how to integrate them into an economically justifiable purchase decision.
Draw the Broad Strokes First
To get a handle on all the ways a feeding system might impact your cost stream, it’s useful to think big first. Of course, the biggest and broadest stroke is the initial cost of procurement including purchase price, installation, commissioning and training. Here, costs are known, immediate, and easily compared. However, beyond these costs, consider how feeding system performance might contribute to or detract from the quality of your end product and how it might be expressed in terms of cost. And how about the many ways a feeding system could impact, for better or worse, the efficiency of your process operation? When you think in these terms, a whole range of contributing factors will suggest themselves.
Then Divide and Conquer
To identify and compare costs you have to get specific, and that requires refining the broad strokes by taking a ‘divide-and-conquer’ approach. For example you may ask yourself “Could we cut our material costs with better proportioning accuracy? If so, how? And how much might we save?” You might find that a better performing proportioning system delivers a very uniform blend, minimizing or even eliminating the need for costly mixing or post-extrusion blending. Or you may see that one system has a significant advantage in material changeover time which can easily be converted into time-based cost savings. Identifying and individually addressing each performance-related cost factor will enable you to build up a clear picture of the total costs involved.
Count Beans Where You Find Them… Count Points Where You Don’t
In TCO analysis, wherever you can reasonably identify, attribute, estimate or assign a cost, do so. But be fair, impartial and evenhanded. Important yet largely intangible decision factors such as supplier reputation, pre-existing customer/supplier relationships, or even the operator’s ‘feel’ of a control system can’t be cast in cost, but they (and all other intangibles) needn’t be excluded or ignored, either; they simply call for a different mode of inclusion. Intangible factors might include the following:
- Application assistance availability
- Systems engineering capability
- Equipment reliability
- Plant wide connectivity & controls integration
- Backward compatibility & retrofits
- Integrated equipment offering
- Delivery time
- Previous experience with supplier & agent
- Current relationship with supplier & agent
- Supplier reputation and standing in industry
- References from suppliers’ current customers
Thus, for each intangible involved in the decision, try awarding each prospective supplier with rating points according to merit, and then assign a weight to each intangible to reflect its importance relative to other intangibles. That way, when you finally do tally total ownership costs in dollars, you’ll then be able to refer to your ‘intangibles’ points totals, see whether or not the intangible factors support the favored TCO supplier, and have a ready-made estimate of how much it would cost to decide against the lowest-total-cost supplier!
Some Benefits are Negative Costs
TCO focuses so much on cost, it’s easy to overlook the fact that all the equipment features that suppliers promote in their equipment are there to deliver some sort of benefit, whether in the form of improved performance, longer service life, better cleanability, flexibility, or many other ways as well. Each benefit delivered acts to reduce total ownership cost and thus can be regarded as a negative cost (more popularly known as a ‘savings’). However, under TCO analysis, if all suppliers offer the same equivalent feature, total ownership cost may fall a bit, but relative ownership cost rankings won’t change at all. Thus, features shared in common among candidate suppliers needn’t be considered, but traceable savings attributed to exclusive or proprietary features should be credited in TCO analysis. The flip side of this is that if one supplier lacks a particular cost-related benefit where all others provide it, that supplier’s TCO should fairly reflect the associated cost penalty..
Time Happens Frequently
With typical feeding-system service lives of a decade or more, there’s a lot of time for even modest operating efficiencies to contribute to a healthier bottom line… or for unwanted inefficiencies to exact their true costs and erode profits. Efficiency-related costs or savings accumulate quickly in normal day-in-day-out process operation and can soon exceed even substantial differences in initial procurement costs. The true power of TCO analysis lies in its ability to ‘telescope’ time, encouraging processors to pay as much attention to future costs as they do to immediate ones.
What’s the Difference?
For the purpose of making a buying decision, TCO is all about differences… differences in equipment performance, differences in quality, in design features, service and maintenance programs, differences in initial price, and differences in any other dimension you might care to include. The pointer here is that it’s the differences in costs we’re looking for, not absolute costs themselves! So, for example, if one supplier offers an exclusive feature that you estimate would save you $X/yr, and no other supplier provides such a benefit, you can go ahead and directly credit those savings to reduce that supplier’s annual total cost of ownership.
Give Accuracy Credit
All processors require their product to conform to the quality standards they specify. Where feeding systems are involved, these standards primarily relate to proportioning accuracy. Presumably, each viable supplier offers a system that at least meets the processor’s performance requirements since suppliers who can’t ‘meet spec’ are weeded out early on. But what about ‘better-than-spec’ performance among the surviving suppliers? Is there a way to fairly acknowledge and value different levels of demonstrated accuracy? After all, no two systems ever offer precisely identical levels of performance. In the end it’s up to the processor to decide if and how to include documented differences in system performance in the final buying decision. But it makes sense to do so. One way is to exploit the innovative strategy of minimizing recipe cost to directly reduce total ingredient costs in proportion to differences in feeding performance. Another way is to consider ‘better-than-spec’ feeding performance as an intangible decision factor (see above), and rate each supplier accordingly. However a processor may choose to do it, ‘better-than-spec’ feeding performance is clearly worth its due credit.
Give Credit for Uniformity as Well
For the same reasons that differences in proportioning accuracy should be included in TCO analysis, the feeding system’s contribution to end product uniformity deserve inclusion as well. While the specific manner in which account is taken depends on the application, it is undeniable that more uniform proportioning of formulation components improves product uniformity and therefore adds economic value to the product.
Making the Decision
With countable costs counted, savings estimated, and intangible factors factored, it's time to make the decision... an informed decision based on all the elements... explicit expenditures and ‘hidden’ costs, costs of time and savings in material, plus the value gained from important intangibles. Combining your cost-based results with intangible decision factors requires adding ‘apples’ and ‘oranges’. While procurement costs can be readily summed, and anticipated time and saving streams can be cost-estimated, intangible elements (with only their overall points ratings) cannot be so easily included. The question must then become “Do the differences in the ratings of the intangibles confirm or negate the decision to go with the lowest TCO supplier?” If the answer is ‘confirm’, the logic of the cost-based decision is endorsed. And if the answer is ‘negate’, the same question is then asked about the next-to-the-lowest TCO supplier and so on until the carefully considered answer changes to ‘confirm.’
Applied properly, TCO analysis is a far-reaching decision tool that reflects envisioned costs for each purchase alternative, whether in the form of direct expenditures or by available process savings. TCO requires gathering ‘hard’ numbers and estimating ‘soft’ ones. It demands careful analysis, attention to detail and a bit of ‘thinking out of the box.’ Nobody ever said good decision making is easy. But in the end, you’ll have the confidence you made the best possible decision, and you’ll have the evidence to back it up!