Total Cost of Ownership starts with Capital Costs
Part 1 of a 3 part series on inkjet economics. Register for free to be notified of new installments.
In theory, calculating the cost of buying a printer of any kind should be pretty straightforward, you just add up all the component capital costs and operating costs and ding ding ding, you’ve got your Total Cost of Ownership (TCO). In practice, the calculation process is complicated by the assumptions that have to be made to determine the operating costs, by the research and requirements gathering that needs to be done to make those assumptions valid and by the fact that some of those assumptions may come from the company that is trying to sell you the equipment. It is further complicated by the interrelationships between cost assumptions – a decision in one area may restrict choices or impact performance in a related area.
There are many other factors that complicate discussions of TCO, but for the moment, let’s consider a simple scenario – or in fairness I should probably say, simpler.
Let’s start with the dangerous assumption that you have documented your requirements and know the features that you need[i]. Our simple approach will look at capital costs, start-up costs, operating costs and the related assumptions and potential sticking points that you may face as you go through the evaluation process. In this installment, we’ll start with the most straight-forward component, the device itself.
This is the big number that will likely play the smallest role in your success with inkjet. A discount off of the purchase price is not nearly as valuable as incentives you may receive in the running cost of the device. With that said, here are some things to think about.
- Printer – make sure that the cost of the printer includes all of the features that you need (e.g. turn bar, drying enhancements, specific ink type and in-line finishing.) The price of a device can vary by hundreds of thousands of dollars based on the configuration options you choose.
- Software[ii] – For almost any software product offered as part of the print proposal – you can get an alternative from another party. Buying from the OEM may be the best option, but it is worth your time to shop around. Software is critical in achieving the levels of automation that drive profit with inkjet. Make sure that you understand your software requirements to ensure that you have all of the necessary components for success and avoid paying for software components you don’t need or already own.
- Financing options – investigate financing options from the OEM and from independent lenders. A small difference in terms can make a big difference over 5 years on a major purchase.
- Offsets – factor in any reductions in capital costs from selling or trading in existing equipment. This could be a differentiating factor among offers and it is important to consider both the value of the expense offset and the timing. If you are not able to move volumes to the new equipment quickly, you may not get the value you expect.
Speaking of timing, there are often incentives incorporated in equipment proposals. Pay close attention to the dollar value of incentives as well as the deadlines associated with them. Many buyers leave money on the table by not taking advantage of all of the training, testing, professional services and business development support offered as part of a buying incentive plan. Make sure that there is enough time built in to allow you to get the most value. That timeline must also consider other start up requirements that could add time and cost.
Start-up Requirements and Costs
Your equipment contract should include all OEM costs of transfer, installation and testing. Also factor in your labor costs and the cost of down-time on other devices if applicable during transition. We highly recommend that you have a site plan done that determines the optimal location of equipment and factors in costs of relocation of current equipment, if applicable.
There may be differences in the devices you are considering that could require additional investments such as:
- Venting systems
- Humidification systems
- Non-standard power configurations
- New paper storage or transport
- Reinforced floor
- Adjustments to ceiling height
- Updates to enable compatibility with current finishing
It’s as important to think about the physical flow of materials and finished products through the plant as it is to think about workflow automation software. Paper handling for inkjet may be different from what you are used to. It’s worth some time and effort to look at the overall shop layout and opportunities for efficiencies when bringing in new equipment.
Production inkjet devices represent a major capital investment and there are many business and technical considerations to take into account, but most of the opportunities and challenges with inkjet economics are found in the operating costs and operating assumptions that need to be made to calculate your inkjet total cost of ownership. We will tackle those topics in Part 2 of this series.
Do you feel enlightened? Confused? Have a burning question? Help me out with some feedback.
[i] If you have time for a couple of drinks, ask me why I say that’s a dangerous assumption.
[ii] Software may or may not be a capital cost depending on how you buy it, but it flows better if I include it here, so please don’t sic your accountant on me.
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