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Vision 2020: Managing capital spending through the total cost of ownership

Food and beverage manufacturers need to know not only the cost of equipment, but also the cost to operate and maintain it. Part three of five-part series

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Major obstacles continue to challenge the food and beverage industry from very different sources. First is the continuation of burgeoning consumer demands, which requires efficient line changeovers. In addition, both food and beverage manufacturers and suppliers to the industry are concerned about the “thinning” of manufacturing that includes consolidation through mergers and acquisitions, significant cost cutting and job reductions, and overall doing more with less, as covered in part two of this Vision 2020 series of articles.

Food and beverage manufacturers are also focused on the total cost of ownership (TCO) of plant equipment. They need to know not only the cost of a piece of equipment, but also the cost to operate it and maintain it.

As cost reduction pressures continue to mount, consumer packaged goods companies (CPGs) struggle to ascertain the true cost of equipment they purchase and operate, according to PMMI’s 2016 Top to Top report. CPGs must first calculate the cost to acquire equipment including engineering costs, permitting and certification, factory and site acceptance testing, and shipping. Beyond acquisition costs, operating costs are part of the total cost of ownership calculus as well and include maintenance, parts, service, training, cleaning, access to OEM technical resources and energy—all of which must be balanced between cost, performance and speed-to-market. Finally, CPGs must implement the appropriate key performance indicators (KPIs) to measure payback on capital investments.

Some of the most critical KPIs for determining TCO include:

  • Changeover time 

  • Cost/unit produced 

  • FAT/SAT metrics 

  • Mean time for repair/failure 

  • Number of operator “touches” 

  • OEE 

  • ROI metrics 

  • Sanitary hygiene design time/cost 

  • Scrap

  • Service location – local versus remote
  • Spare parts cost and availability

  • Standard parts availability

  • Throughput

  • Uptime

  • Utility usage

  • Vertical start up time.

To varying degrees, safety managers, quality managers, plant managers, operations managers, engineering, procurement and plant level supervisors are involved in the assessment of equipment costs. Typically, there are two schools of thought on this subject:

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