Machine life cycle metrics should be part of every company’s continuous improvement and financial management process. What is the effective life cycle of a machine tool, anyway? When should we look at replacing our older equipment with newer ones?
Now is as good a time as any to evaluate the past performance of your equipment and see if it still meets your financial and business objectives. While there may not be one specific trigger that will determine when to consider new equipment, a combination of triggers should provide objective and financial justification.
Fixed and Variable Costs
While we sometimes become attached to our equipment, the answer as to when equipment needs to be replaced should be an objective one rather than a subjective one. Each company is slightly different in how they approach their fixed and variable costs and what they consider to be an effective return on investment (ROI) for considering new equipment. There is commonality though when it comes to analyzing cost per part. No matter how fixed costs and variable costs are calculated, all related fixed and variable costs eventually affect the cost per part, and ultimately a company’s competitiveness.
Repair and Maintenance
One of the largest variable cost factors for older equipment is the cost to repair and maintain it. How much is the cost to repair the equipment contributing to the total variable cost? How much more, as a percentage, does the cost to repair and maintain differ from when the machine was new? Of course, you will need to make this comparison based on an equal number of operating hours. To see true costs and trends, costs will need to be evaluated on a rolling basis and over time. Was it a one-time large repair cost or does the trend show increasing repair costs over time? Remember to include lost machine revenue due to downtime with the machine repair costs. Excessive repair costs greatly affect your profit and your cost per part.
Cost per part
What about the actual cost per part on your current equipment and comparing to that of producing the same part on a new machine? If we compare the new cost per part calculation based on the costs (fixed and variable) and the run time estimates from the vendor, how much lower in percentage is the cost per part compared to the current equipment? Both the trend line in cost per part and lost bids should be analyzed to determine when these increasing trends become a trigger for considering new equipment. Lost bids and higher costs per part affect sales revenues and profits.
Revenue growth targets
What about revenue growth targets? What percentage of revenue growth did you forecast and are you losing that growth due to lack of competitiveness, higher operating costs, and reduced productivity? Not reaching revenue growth then becomes a trigger. What about margins? If margins are squeezed due to costs and competitive pricing, what is the minimum operating margin that your company can sustain? The minimum margin percentage then becomes a trigger once it is reached. What about ROI? That in itself is another trigger threshold. If the ROI is less than 2 to 3 years for justifying new equipment, this should become another trigger for considering new equipment.
Maintaining your competitive edge
Machine life cycle metrics should be part of every company’s continuous improvement process and financial management process. It’s up to each company to determine the correct triggers and their threshold values. Timely objective decisions based on established triggers are how companies maintain their competitive edge. This ensures that their revenue and margins are in line with business objectives and maintain a healthy business environment for continued growth.
By Frank Arteaga, Head of Product Marketing, Bystronic Inc., Hoffman Estates, IL