When you purchase a new packaging machine, are you buying it for the next year? Or how about the next five years?
Neither should be your answer because you’re looking to invest in a machine that will package your products for the next 20 years.
When deciding on a new packaging machine there are many factors to consider in your new machine but two factors likely sit near the top. One is buying the best machine to package my product and the other is to determine the total cost of ownership of the packaging machine of the potential new machine.
Additionally, while looking at acquisition price and determining your desired level of quality, ask yourself, why do people buy John Deere tractors? Why do people buy Bose Speakers? You know these high-quality products are going to work, they have strong brand reputations, and will hold up over time.
Comparing machines based on acquisition price
The price tag, or in technical terms, the acquisition price is usually the first thing you look at when you purchase anything.
Let’s say you’re choosing between two packaging machines — let’s call them “Machine X” and “Machine Y”. Your initial instinct might be to look at the acquisition price and see that Machine Y is cheaper and accomplishes the same packaging function as Machine X. Machine Y appears to be the choice.
However, comparison in price doesn’t stop at the acquisition price.
Rather, you should analyze and compare the Total Cost of Ownership (TCO) and Overall Equipment Effectiveness (OEE) of each machine. These percentages and figures look beyond acquisition price and will determine which machine and will have a better return on investment in the long run. Here are some things to consider when looking at TCO.
How Total Cost of Ownership works
Total cost of ownership is used to assess the long-term value of a capital purchase to the company, such as a new packaging machine.
TCO ($) = purchase price of the machine + operating costs over the asset’s lifespan
While the acquisition price of the packaging machine does apply to the machine’s overall cost, there are many factors that contribute to operating costs which are listed below.
- Utility costs are the cost incurred by using gas, electricity, compressed air, or water.
- Direct labor refers to the wages of machine operators and other employees that work the packaging line, loading and unloading products.
- Initial training costs are incurred training employees on the workings of the machine.
You can break down costs even further into one-time costs and recurring costs. One-time costs are the capital equipment and installation costs such as general equipment, freight, the factory acceptance tests, and initial training. Recurring costs are utility costs, material costs, labor and maintenance costs such as electrical, gas consumption, rollstock lidding film, and service costs.
The higher your OEE, the more profitable you’ll be.
What are some factors to look for in a machine and to include when determining TCO?
- First thing we need to determine is the OEE of one machine vs another machine
- Secondly, how much labor is involved in the line? Specifically, stranded labor, which is the labor that stands around when the machine isn’t operating, needs to be measured.
- Next, compare initial acquisition prices. If the payback, based upon superior OEE, is less than three years on the differential between the more expensive and less expensive machine, that would be a 33% return on your investment which is excellent.
- Consider pricing and parts consumption — how many spare parts is your machine going to need? Similarly, determine your cost of maintenance on the equipment. Internal maintenance and vendor supply maintenance both need to be accounted for.
- Packaging waste are the materials not used as part of finished packaging. These finished packs didn’t meet requirements and had issues such as leaks, bad O2s, and bad registration of printed film.
- Also consider the expected life of the machine. Will this machine last 10 years? 20?
How is Overall Equipment Effectiveness Determined?
As you can see, the multitude of factors impacting operational expenses makes it difficult to calculate true TCO when making a purchasing decision. OEE measures how effective and efficient the machinery is and how those characteristics help determine total cost of ownership.
OEE (%) = (Availability of the equipment) x (Performance) x (Quality)
This equation is perfect for comparing two or more machines and their effectiveness over a period of time.
- Availability is the percentage of actual run time divided by the planned production time.
- Availability = Actual Run Time / Planned Production Time
- Performance is measured by total count produced divided by run time divided by ideal run rate. In other words, it’s actual output over ideal output. For example, let’s say your ideal run rate equals 100, and the actual run rate is 95. Then simply divide 95 over 100 and the performance would be 95%.
- Performance = (Total Count / Run Time) / Ideal Run Rate
- Total count is every piece of packaging produced including defective packages.
- Run time is calculated by subtracting down time from planned production time.
- Quality accounts for manufactured products that can’t be used because they’re out of specification. If you can’t use a finished packed product, it wastes valuable time and materials.
- Quality = Good Count / Total Count means good packages produced divided by total packages produced.
What’s important is the difference in OEE between two machines. When you compare two machines in the same application, as little as a 5% difference in OEE is significant. A 5% difference can often yield hundreds of thousands of dollars a year in savings.
The OEE and TCO of Packaging Machine X and Y
OEE is an exceptional tool to determine which machine is a better investment and the more reliable option in the long run. These equations can be used to compare two or more new machines, or the cost and efficiency differences between your existing machine and a new machine.
For example, look at the OEE and TCO between new Machines X and Y over 10 years. Both machines produce the same packaging and were put in production at the same time running the same application at the same speeds.
Machine X’s acquisition price was $550,000 and Machine Y’s was $400,000. They were rated at the same speed, same material per package, and same labor units per line.
Although the metrics seem similar, small differences in OEE can have large effects on the total cost of ownership. Let’s say Machine X has an OEE of 90%, and Machine Y has an OEE of 85%.
Over ten years the comparison in TCO between Machine X and Y is clear.
- In the first year, Machine X is more expensive, as its acquisition cost is higher.
- However, there is an annual differential of $107,000 due to labor inefficiencies and material waste.
- After the first year, Machine X is $43,000 more expensive.
- After two years, there is a $63,000 savings in owning Machine X
- The break-even point here is 13 months. Despite the acquisition price, Machine X is the better investment. These savings continue to compound and after ten years equate to $900,000.
Need help comparing OEE for two packaging lines?
Contact your OEM for information on OEE so you can make an educated cost benefit decision on your new packaging machine and line.
If you’d like to compare our packaging equipment against a competitor’s based on OEE, we will walk you through the calculation. Of, if you’d prefer to calculate it independently, we’ll supply with you all the information you need to do so. Simply reach out to our team to get the conversation started.