Lowest Life-cycle Costs vs. Lowest Price

POSTED ON 4/3/2020 – For manufacturers overseeing major capital investments, understanding the true cost of a product or service can be difficult. This is probably why most prefer to simplify their purchasing decisions by basing it on the bottom-line price alone. While this approach theoretically makes sense – a dollar saved today is a dollar to spend on more tomorrow – it fosters a very serious problem: It fails to take into account the total cost of ownership across the full life cycle of an investment.

Understanding total life-cycle costs for machine tools, for example, can be a difficult task, even for experienced manufacturers. Consider the scenario of a customer that discovered they were losing a gallon of coolant per machine per day as wet chips carried it out on the machines’ part conveyor belts. With 14 machines using coolant that can be over $25 per gallon, those costs might be invisible on a day-to-day basis, but at the end of the year, they can balloon to upwards of $150,000. This is a part of the total life-cycle cost for a machine tool, which also includes such costs as the downtime during spindle rebuilds, waiting for a spare part, machine power consumption or the cost of annual machine maintenance.

For a more effective approach, the total life-cycle cost of a machine should be calculated as the purchase price plus all other costs associated with running and maintaining that machine minus the machine’s resale value. This last factor acts as one of the only ways to reduce the life-cycle costs of a given purchase after installation, and in the world of manufacturing, it can make a significant difference in the actual price of owning a machine tool.

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