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In the Fold

You've pored over the specs, grilled the supplier and you're sure you’ve found the new machine that will meet your production requirements. All that remains now is to convince your boss, your boss's boss, the chief executive office, the chief financial officer, the board, and perhaps the bank.

It used to be simple. You just took the cost of the project, factored in the extra production and savings in labor and you'd come up with the payback period. As long as it was close to the bosses’ requirements, you were done.

Modern manufacturing, however, is a complex web with many more stakeholders involved. So traditional costing has given way to methods that take into account how every process interrelates. At heart the old and new methods are similar, but the new methods include provisions for everything from finance costs to customer satisfaction, giving buyers a much better idea of the real costs and benefits of their investment.

Take something as straightforward as the cost of the project. If the money isn't coming from reserves, what will the additional costs be to finance the purchase? Can the vendor offer a better finance deal than the bank? Will leasing or rental be better given that there may be tax advantages over the term of a lease? (Get your CPA involved early!) Are there any federal or state taxes to consider? Or, on the plus side, is there any financial assistance available? (The Small Business Administration website, www.sba.gov, or the Catalog of Federal Domestic Assistance website at www.cfda.gov can help here.)

Finally on finance, what will the equipment be worth down the road? A quick study of “equipment for sale” ads, or a call to a used equipment broker, will give you an idea of which brands and models will have you sitting on a worthwhile asset in five, 10, or 20 years time.

So, on to the benefits side of the analysis. Suppliers invariably quote “up to” figures that depend on the materials and styles run. Any equipment supplier worth their salt will offer you an analysis or even a trial using some of your own jobs. Take advantage of this to help you gauge likely performance for your work in terms of speed and makeready as well as the labor requirement.

Certainly increased productivity and new markets are some of the more common justification variables, but don’t forget the less obvious, which can add up to substantial savings as well.

Reliability can be factored in as increased uptime. Your supplier should be able to give you a figure for the equipment and should stand behind it. Higher reliability also means less unscheduled maintenance and reduced maintenance on-costs. A good supplier will provide figures for this and offer maintenance products to help you budget accurately.

Energy costs continue to edge upward. Consider the power consumption of your new machine? While newer machines tend to be more energy efficient, some may draw more power than the ones they are replacing. However, make sure you compare apples with apples. If a machine has 50 percent more output or replaces more than one process, then this should be reflected as energy savings as well as a productivity increase.

New machines typically reduce waste. New technology, such as the dynamic register system on many Bobst diecutters, significantly reduce scrap levels and allow jobs to run with fewer “overs.” You can easily put a value on that benefit and on the reduction of “work in progress” and inventory.

Improved product quality should also have a positive effect on the efficiency and waste of downstream processes. This can be used in your justification as well, assuming the downstream is capable of increased efficiency. If not, maybe you should be looking at a bigger project?

Then there are the things that are harder to quantify. Can you put a value on the financial strength of your equipment supplier? Will they still be there in years to come when you need a vital part? What do they have in the way of spares and service backup? It may be hard to put a number to these items, but they are very important and worthy of substantial consideration.

Toughest of all perhaps are the questions such as “how much is increased customer satisfaction worth?” And on the flip side, “how much does a missed delivery slot cost you?” or “what is the financial hit of a lost contract?”

Above all, be honest with yourself in the figures you put down. After all, it's you that has to deliver them.