Considering Total Cost of Ownership for Capital Equipment

Posted on December 15th, 2016 by vapro

The ongoing costs after you’ve written the check for that piece of capital equipment are just as important as the purchase price.

Considering Total Costs of Ownership for Capital Equipment

They’re everywhere — in the news, at association meetings, in advertisements, in conference rooms, and on agendas — ROI, OEE, TCO, as if we needed more acronyms! These terms are nothing new, but do we really understand what they mean? What do they mean for processors who have to make decisions on capital equipment purchases? Are you looking at the bigger picture, not just the equipment cost?

Here’s some definitions to consider:

  • ROI (Return on Investment): A performance measure used to evaluate the savings and/or revenue increase credited to the equipment after initial and ongoing costs are considered.
  • TCO (Total Cost of Ownership): A performance measure meant to uncover the lifetime costs associated with the equipment both before and after it is purchased.
  • OEE (Overall Equipment Effectiveness): A performance measure that determines actual production performance against expected production performance.

Let’s break this down into three categories, all of which need to be considered when calculating total cost of ownership.

  1. First, let’s narrow down the direct costs: Engineering, procurement, equipment cost, installation, shipping, controls, existing equipment removal, start-up assistance, cost and time of training. All of these items should be considered as part of the initial cost of the equipment.
  2. Next, what about ongoing direct costs? Operating labor, maintenance, utility costs, engineering and spare parts.
  3. Finally, what about indirect costs? Unscheduled maintenance and downtime, material spillage (waste), contamination, off-spec material, and sanitation.

Infographic: Total Cost of Ownership — Belt Conveyors vs. Horizontal Motion Conveyors

The ongoing costs after you’ve written the check for that piece of capital equipment are just as important as the capital price and must be considered before you sign on the dotted line.

Check out the presentation below to gain a better understanding of the ongoing costs associated with belt and horizontal motion conveyors.

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