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Total Cost of Ownership and Net Present Value

May 05, 2019

Dear all,

I came across the recent article on Total Cost of Ownership on packaging machinery, very interesting article indeed, however, it did not show clearly how you can evaluate between two suppliers which one has the best option given more complex real life situation. I have added some questions and comments for further input from colleagues. 

Question: Are data like OEE and GE readily available from machine suppliers? I have not seen it before and wonder if anyone can contribute. The comment I would expect if I approached different machine suppliers for OEE data is: it all depends on type of packing material, skills of the operators, product uniformity, in-feed automation, learning curve, even environmental conditions (Temp and RH), etc...

I have also a comment about optimizing product future cash-flow mentioned in the article, we need to differentiate between Sales Revenues and Cash-Flow, I would personally use product Contribution Margin (CM) instead, which is Net Sales Revenues - All Variable Cost rather than product Cash-Flow which is very difficult to determine in case you have multiple SKUs.

An important point in my opinion to add is the Cost of Capital (CC), some companies propose some incentives on cost of capital, such as lower interest rate or long term installments (through banks of course as suppliers of machines never finance), this also needs to be taken in the equation.

If OEE, CM, CC, CAPEX are all available, there is nothing better than to use the Net Present Value (NPV) method in my opinion to reach a single monetary value for the investment and compare it with other suppliers. 

Regards


 

  

OEE
GE
TCO
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