Total cost of ownership (TCO) is a familiar concept to many of us. In simple terms it is the total of all the direct and indirect costs associated with an asset during its entire lifecycle. In the case of an automobile TCO must include the purchase price (including finance costs) plus the cost fuel, maintenance and repair, insurance, licensing, taxes and any other associated cost. Obviously the purchase price has an impact on the total cost of ownership but may not be a good indicator of what a vehicle will cost over its entire life time.
That raises the question, “Just what are the cost drivers associated with products in an industrial setting?” That is what I intend to answer here. The main cost drivers I will address are: energy costs, repair costs, unplanned downtime including lost production and maintenance costs.
Energy costs seem like a very obvious place to start when you are considering electric motors. According to the Department of Energy electric motors consume 63 percent of electricity used in industry. For the typical motor electricity accounts for about 97 percent of the total cost of ownership, so you can see why a small change in motors efficiency can have a huge impact on the total cost of ownership.
But what about opportunities for energy savings beyond the motor? In some belt applications simply changing from a wrapped v-belt to a molded notched v-belt can reduce energy consumption by three percent. That may not sound like a lot, but if that belt is attached to a 50 HP motor running continuously and you have ten of these drives on your ventilation system, that three percent can translate into many thousands of dollars in energy savings with a very small investment.
Another example is in speed reducers. Worm gear reducers remain a popular choice because of the low investment cost. But in higher ratios that same reducer may be operating at 70 percent (or less) efficiency. The rest is going to heat you plant—perhaps leading to higher cooling costs. New designs of helical reducers, even in high ratios can have efficiencies of well over ninety percent. The energy savings will very quickly pay for the higher initial cost of acquisition.
Repair and replacement costs represent another area for savings. One of the best examples of this is in roller chain. Most chain manufactures offer premium roller chain with features such as self lubricating bushings, ground and polished pins and other feature that incrementally increase the life of chain particularly in harsh applications. Yes, this chain costs significantly more up front but if it lasts many times as long as “standard” chain the savings from multiple repurchases and installation costs will offset the higher initial costs many times over.
Its 1:00 AM and a critical piece of equipment goes down shutting down an entire production line. Production personnel have nothing to do. Material in process is ruined. Production schedules are missed. “I sure hope I have that bearing on the shelf.” We’ve all seen it happen. We’ve all had that phone call in the middle of the night.
What if we had a way of knowing the condition that piece of equipment was in and could do something proactive about it during non-production time. Well you can. Condition monitoring can provide valuable insight into the health of you equipment. Once this service was only for huge facilities that could afford the investment in very expensive monitoring equipment and the training costs to make sense of the mountains of data collected.
Today condition monitoring equipment is available with minimal investment and the data can be interpreted using an outside source providing expert insight into the condition of critical assets. Yes, there is a cost to this—but just how much did that recent breakdown at 1:00 AM cost by the time you added everything up.
It seems that every plant has certain pieces of equipment that are prone to going down. You keep replacement parts on hand. Your maintenance people have gotten so good at changing the failed parts out, you might think they were a pit crew at the Indy 500—except that you’re paying them overtime to be there. In short, you’ve learned to live with it. Today there are so many options available in both products and design software that you can usually find a properly applied solution that will outlast by many times what you have learned to live with. Contact ISC Companies. We have the expertise to look at the overall design of a piece of equipment and make a recommendation based on the factors involved in the application rather that just replacing what is currently on the machine.
This is certainly not an exhaustive list of all the cost drivers associated with operating an industrial production facility—but it is real world. What’s more it’s easy to document the savings discussed here. There is always a lower priced product available and to say that purchase price is not a component of the total cost of ownership would be false. But it is just that: a component and often a fairly small component at that. Give us a call—we can be your partner in reducing your costs. We will help you increase your efficiency while reducing downtime and waste. In the end that’s where the real savings are.
Machine safeguards are designed to protect a company’s most important assets — its employees. The use of proper safeguarding methods and safety devices is required by regulations; however, it simply makes moral and common sense to provide a safe working environment. The same equipment that reduces the severity or prevents an injury also provides an opportunity to make a positive impact on a company’s bottom line.
Nobody wants an injury, and employers usually do not want to think about the “what ifs” associated with an injured employee — let alone calmly analyze an accident in terms of dollar costs and the financial benefits associated with machine safeguards and an active safety prevention program. As a result, examining and analyzing the costs of an injury is typically limited to totaling the direct out-of-pocket expense associated with each specific injury, usually taking the form of what the insurance company reports. Developing a complete picture of an injury and all associated costs and activities will reveal a better understanding of machine safeguarding practices and its impact on operations and the bottom line.
Total Cost of an Injury
The cost of a work-related injury goes beyond hospital and medical bills. The cost of an injury cascades throughout the company on the plant floor as well as in the area of support functions. Costs include immediate and deferred direct and indirect expenses. Immediate direct costs begin with the loss of the worker’s time resulting from the injury or illness. Medical expenses, such as hospitalization costs, x-rays, drugs, doctor bills and the cost of transporting the injured worker to a doctor or hospital are further examples of direct costs. Even when covered by workers compensation or disability insurance, these costs will still have a financial impact on the company through future rate increases.
Deferred direct expenses include the cost of rehabilitation of the injured employee, and would include expenses such as physical therapy, use of medical devices and follow-up medical treatment. In many injury cases, retraining of the injured worker for other job functions is a necessity for them to re-enter the workforce. For example, an injured machinist maybe trained to be a computer or NC programmer.
Indirect expenses are costs resulting from the accident, other than those directly attributable to the injured worker. For example, additional lost time includes that of the employees involved in helping the injured worker such as a company emergency response team as well as those who stop to see “what happened?” Considerable supervision and management time will be spent in resolving a number human resource, accident investigation and production difficulties brought about as a result of a lost time injury.
It is also easy to extend these costs to include lost time or throughput of the machine or production process involved in the injury. If the machine is idle because of the injury, the costs of an injury will extend to the lack of production of the related production equipment that further process the material from the machine involved in the incident.
Lost production time can necessitate the need for overtime expenditures to resume production and get the factory back on schedule. In addition, it may be necessary to train a new or transferred worker to perform the work of the injured operator during his or her absence.
Besides production costs, an injury that results from improper use of a machine can, in some cases, also result in damage to the machine. In this case, the accident adds repair costs and more machine downtime. It may be necessary in some machining operations to consider the cost of a damaged work-piece or tooling, which may be a considerable investment and actually belong to the customer. The repair or replacement will lead to further expenses and lost production.
Additional indirect costs include the expense of investigating the injury and complying with statutory requirements such as filling out forms for OSHA or your state safety agency. In any instance, a company will have to contend with insurance and worker’s compensation claim forms, as well as accident investigation forms. The costs of an injury may also include possible litigation.
An injury can influence costs, even outside the company. An injury can affect insurance rates, and may result in fines from OSHA and state regulatory bodies. Penalties from OSHA can range from nothing to as much as $70,000 per machine, if a willful violation occurs. And then, there is always the expense in retrofitting the necessary safety equipment to help prevent an injury from recurring.
Cascading Impact of an Injury
Clearly the complete shock of an injury goes beyond financial matters. The emotional impact to the injured employee and co-workers is significant, and can result in a loss of pride, trust and security in the employer. When employees, a company’s most valuable asset, are not able to work, they will feel less an integral part of the company’s success.
After analyzing all costs associated with an injury and considering its total financial impact, it is not unusual to realize that the actual total cost of an injury can run from four to ten times the immediate, visible, direct costs as may be stated by a company’s insurance company. When considering all of the details of the cost of an injury, including direct and indirect costs, it is apparent that the total influence on the bottom line is significant. Often those safety projects which you just never seem to be able to get around to are often the ones you cannot afford to be without.
Be safe out there!