The Total Cost of Ownership for Manufacturing Equipment

It may seem like owning your own manufacturing equipment would save you a lot of money–but when you get down to brass tacks, this isn’t always the case. Let’s take a look at what owning your own manufacturing equipment really costs you.

Procurement Challenges

When setting out to purchase your own machine, you will be met with a wide variety of options–everything from simple designs to complicated multi-axis machines functioning in multi-machine cells. Procurement is a critical part of manufacturing, but it can be time-consuming and costly. Depending on how many people and platforms are involved, it can also be difficult to control. Not only is it hard to find high-quality suppliers, it can also be difficult to qualify them. And then, once you’ve got them? You have to manage them. That can be just as hard, if not harder, than finding them in the first place.

Then there’s the challenge of keeping costs low. If you already did a lot of negotiating with your supplier on the front end of the process, then it may not be possible to negotiate more in the future. And if you’ve already gone beyond the point of increasing your economies of scale, this can be a hurdle that’s extremely difficult to jump.

Additionally, many OEMs struggle with keeping their data consistent and accurate. While the procurement process is becoming more automated, there are still multiple platforms and programs involved, which can lend itself to errors and inconsistencies.

There’s also the potential of a hidden acquisition cost: Integration of new machines into existing manufacturing systems. This process may be simple and require only basic updates, but there’s also a chance that it will be incredibly complex, involving custom engineering solutions and multiple updates for many parts of your facility.

The bottom line: Procurement can be a tedious, complicated, time-consuming process that doesn’t always turn out well for you as the OEM. Not only could you lose money, you could also lose a lot of time.

Maintenance Costs

There is always some burden of equipment maintenance on manufacturers, regardless of what kind of manufacturing equipment they’re working with. Because of this burden, OEMs must invest in the most crucial pieces of equipment, calculating a machine’s annual returns vs. yearly costs.

Proper maintenance is essential, but sometimes, it’s ignored in favor of keeping the machine running. While the machine may earn money for the operation in the moment, when proper maintenance is pushed to the back burner, something much more inconvenient than planned downtime happens: unplanned downtime. And nothing throws a wrench in a facility’s plans like a machine going down unexpectedly.

One of the greatest maintenance costs comes with equipment that isn’t often used. Sometimes, OEMs may overinvest in capital equipment, thinking they’ll use it more often than they do. Whether it’s due to cyclical production times or an inaccurate prediction of future workload, machines sometimes end up sitting around a lot, which really drives up their TCO.

Take, for example, a laser cutting machine. The cost of owning one of these machines can be split into three categories: labor, operations, and depreciation.

For labor, costs include time allotted to the handling of raw material, completed parts, and remnants, plus a person attending the machine while it is running. To understand the total sum of this cost, one must understand how much it costs per hour to pay an operator, how long each part spends on the machine, how long it takes to set up the machine, and how much time the operator spends actually attending the machine. Each of these elements will probably be different for every application and every facility.

Operational costs include gas/power, maintenance and repairs, consumables, and the like. These costs are incurred only when the machine is in operation.

Depreciation costs take into account the machine’s estimated value at the end of the payment cycle, regardless of whether it was a monthly lease or a purchase over time. These costs occur whether the machine is in operation or not.

Laser cutting machines can cost as much as $1.5 – 2 million, plus an estimated $50,000 – $75,000 in annual operating costs. Factoring in a yearly maintenance cost of 3-4% of the original purchase price, an OEM is already looking at extremely high costs–and that’s not even accounting for investments in spare parts. Additionally, maintenance costs tend to go up as the machine ages, so one year’s 2% maintenance costs could become 4% in just a few short years. In some instances, the annual maintenance cost for a laser cutting machine can add up to almost $250,000 over the course of a decade.

Why Outsourcing Makes More Sense

By working with a contract manufacturer, you remove the risks listed above and set yourself up for success in many other ways. Not only do you massively increase your capacity by outsourcing, but you also reap the benefits of higher quality parts, reduced costs, and no lost time and money due to procurement problems.

Ready to talk to one of the biggest names in manufacturing? Contact O’Neal Manufacturing Services today.