Total Cost of Ownership, or TCO, is a vital component in determining whether or not a business should invest in certain equipment or upgrades. It’s one of several factors that must be considered. Here, we’ll look at what TCO is, why it matters, and how to apply it to purchasing x-ray and fat analysis (FA) machinery for food manufacturing.
It’s Always Good to Start with Definitions
TCO is a calculated value reflecting the total cost of an investment over the course of its lifetime. The TCO analysis is very important given that this major investment could have a lifetime of a decade or longer. This equation involves costs of hardware, installation, and various costs required to maintain the asset and keep it running. Another objective of the TCO calculation is to determine how long the machine will last until its cost outweighs its benefits.
In truth, this model varies depending on a multitude of factors. The variables constituting the equation are unique to each situation. The TCO reveals how much the proprietor must continuously invest in the machine to keep the production at desired quality and delivering at or above quota. One then multiplies that cost by the unit of time one expects the machine to be in use.
An iceberg analogy is frequently used here. There are three levels: the tip of the iceberg, the surface of the water, and the mass below the surface.
- The tip of the iceberg is initial hardware and software cost.
- The surface level is shipping and installation,
- The below-surface elements are maintenance, maintenance skills required, operating cost, spare parts, upgrades and downtime.
Determining the Cost-Value Relationship
Let’s look at the likely must-haves for a list of costs an x-ray or FA machine might carry. These items will be common for food-production technology.
- Running Cost: This is always in the equation for any machine. This variable represents the equipment’s energy consumption over time. Think kilowatts per shift or week. Food processing machines require frequent maintenance and sanitation attention. The frequent tear-down and aggressive physical and chemical cleaning of these machines creates cost associated with downtime and even contributes to depreciation of the hardware, but it increases longevity when done frequently and well.
- Repair and replacement parts: Depending on any machine’s specifications, there will be a certain level of labor and parts cost. Preventative maintenance is prescribed to lower long-term costs. The equipment manufacturer will inspect the piece at a frequency determined by the buyer and seller based on its unique specifications. One big concern is the percentage of stock parts versus manufactured parts. The amount of TLC needed must be considered in the TCO.
- Engineering: Chemical, physical, but especially microbiological contamination is of utmost concern to food manufacturers. If a machine is designed to be easy and fast to clean, as well as cleaned thoroughly, the TCO will be lower. If equipment is difficult to clean, it could lead to contamination, which in turn leads to the dreaded recall. A well-designed machine saves time and increases productivity. This is done with ease-of-use features, such as touch screens, that allow the operator to use, correct, and change over the machine without difficulty.
- Estimated Lifetime: A well-engineered and well-maintained machine doesn’t just reduce downtime, but it also has a higher lifespan. Taking care of your investment to the manufacturer’s specifications can lead to a piece lasting well beyond a decade. Some owners whose machines last beyond the lifetime originally planned for call the extra time “free years.”
- Performance of the Technology: If you’re buying high-tech equipment that has been well-engineered, it can add value to the TCO in terms of output quality and volume. A model of x-ray machine that’s more accurate and operates faster brings cost down and profit up. That impacts its TCO. In the food industry, the modern base-level is a machine that lets the owner check off all the boxes for prevention of contamination. Many go above and beyond, offering advantages like tracing, measuring, and counting product or determining if a unit is missing.
- Value per Square Foot: One consideration food manufacturers must make is how much space their equipment occupies. This must be weighed against its output. It’s akin to “bang for the buck.” Productivity need not only be measured in packages per minute. If a machine is collecting important data while operating, that adds value. Maximizing productivity per unit space yields a more desirable TCO.
What’s the Next Move?
Are you considering purchasing a new technology, or even just an upgrade to your existing equipment? You’ll need an accurate TCO to make the best investment. We can not only help you determine the TCO for a particular machine, but also help you decide which combination of machinery would best suit your needs. If you’d like help or even peace of mind that you’re leading your enterprise in the most competitive direction, our services and expertise can ensure you make the right decision.