Beyond the Capital Expense: additional costs when purchasing equipment
Walking the floor at a recent trade show, I was in awe of the technology on display and how all these pieces of equipment can help my business create amazing products. The level of detail in the engineering that was being showcased was mind-blowing, and the ability of these machines to chop, stuff, twist, link, transport, package, and label with such precision and at such a high level of quality and sanitation was truly inspirational.
I’m sold, but now what? How do I implement such a high-tech processing line in my plant? The easy part is to envision how a new processing line, or piece of equipment can transform my current process from sluggish and manual into a humming, high-volume production line…and create profit while we’re at it. If I’m currently making sausage by hand with a chopper and a piston stuffer, now I can easily see how upgrading to a vacuum stuffer, linker, and a buggy lift can help to make the sausage line more efficient, and help reduce labor, give-away, and improve quality. But what steps do I take to ensure my vision becomes reality?
The cost of equipment up-front is one thing; paying $200,000 or more for the pieces to upgrade the processing line (or install a new process or service not currently being offered) is only the first step. Analyzing the ROI of the investment will help to show the team how to create long-term profit from a large purchase. In the example of the sausage line, reduction of labor, and creating more margin out of a byproduct such as pork trim are examples reasons to upgrade. Maybe stuffed sausage links are currently not a service being offered, and adding a stuffer, linker, and new would allow access to new markets. Projected savings in labor, and the increase in margin due to the value added to this trim product can be quantified and used to secure financing.
But, what are the hidden and sometimes long-term costs that are not considered in the ROI? These costs are not always captured in the ROI analysis, and some companies simply do not put resources behind training, preventative maintenance, or inventorying parts. Those and other factors can become costly in the long run, and even sink an investment before the profits are realized. Purchasing equipment from trusted vendors in the industry that have reliable availability of parts, local service technicians in the area, and possibly even offering service contracts, staff training, and PM programs included with the purchase agreement can all be ways to ensure the investment performs as advertised.
Mapping and Installation: Where is the new equipment going to be placed? Often a manager or owner of plant knows the floor plan better than anyone. However, it’s important to gather input from the production staff as well. I have found, over and over, that the people working daily in production have a different perspective than I do as a manager. Even though I have a background in production, they work in the production rooms every day, and they know about the little divot near the drain that always makes the cart tip over if you don’t roll it a certain way, or the drip pan under the refrigeration fan that has been dripping condensation during the summer over in the corner of the room. Whether or not these little intricacies change the perspective on placement of the new equipment they are important to consider. Company culture is an additional benefit to involving all levels of employees in these types of decisions and can make people feel included and valuable.
Training costs: Now that it has been determined where the new equipment is being placed, production and maintenance staff must be trained on how to use the equipment. Training costs money: reduction in productivity, reduction in throughput, and even the cost of an expert coming on-site to perform the trainings are all possible expenses to the company. However, training is essential to the successful installation and implementation of new equipment for a number of reasons.
Not only do staff need to be trained on how to operate the equipment safely and effectively, but also staff should be shown why it’s important that the company is investing in this equipment. Sometimes, employees can feel a sense of pressure that the new processing equipment is meant to replace them, or some of their co-workers. And reduction in staff may ultimately be the case, explaining how becoming an expert in operating the new equipment will show value to the company and will be an important part of implementing the new process. In addition to adding value to the company to secure their position in production, by implementing the new equipment the company may be adding profit and reaching growth goals, which may open up new opportunities for employees in other areas of the business.
One of the keys to making successful improvements in the process through equipment upgrades is the willingness of production staff to care for the equipment and parts. If production staff does not value the new equipment there is a likelihood that they will not be as concerned about dings, dents, lost screws, or broken safety guards. The same can be true of the sanitation crew. If the importance and value of this new equipment is instilled into the company culture, it’s more likely that staff will respect their workspace, equipment will last a lot longer and be maintained properly which will play a role in creating value for the company for years to come. This approach can also lead to reduced maintenance costs and reduced down-time throughout the life of the equipment.
Training to care for the equipment, properly and safety operate the equipment, and any changes in food safety programs are all very important to successfully installing new equipment in the processing department. There are companies that do not value this part of the equipment procurement and implementation process. They simply install the new equipment, give a quick overview on how to use the equipment, and then expect their staff to care for, clean, and operate the equipment properly and with respect. Instead, the equipment gets damaged, is used improperly (which is both unsafe and results in inferior product), which leads to downtime, and costs a lot of money in new parts.
For example, a company I worked for installed a new $250,000 trim grinding line and within the first year the grinder worm was damaged, the electrical wiring on the motor burnt out, and we lost a steel trim rake into the grinder creating a food safety hazard for hundreds of pounds of ground beef that was disposed of.
If spending good money on equipment, there should be an expectation of increased profitability. For the plan to come to fruition though, staff must be trained and involved in the process to create a sense of ownership.
Preventative Maintenance: Often with new equipment purchases a vendor will include a PM contract for the first year, or few years. My advice is to take advantage of this offer because PM is an essential part of the ROI. The name is self-explanatory: “Preventative Maintenance” prevents larger issues happening down the road. Whether it’s changing oil, filters, gaskets, or changing out worn parts these tasks are meant to prevent larger issues from cropping up. I have personally seen management undervaluing PM and paying the price with significant down-time, poor quality products, and unsafe operation of the equipment. Worker safety, food safety, and quality of products are all essential to the success of a meat processing business. PM helps to keep the equipment running smoothly allowing the company to check all of these boxes. If a machine breaks down, or a part breaks due to a lack of PM, the expense will be greater than the cost of the PM, guaranteed.
Technician Support: Not only is PM important and should be completed by someone who understands how to properly perform the PM, but in the case that the machine needs work done that is outside of the expertise of an in-house maintenance team it’s important to have reliable and quick service available near-by. Not all equipment sold in our industry can offer that benefit. The availability of parts and service locally is extremely important, and not all vendors can offer that due to design and manufacturing taking place overseas. In the case that a break-down occurs (which if you’ve worked in the meat industry you know happens more often than you’d like, or in other words the week before Father’s Day when all of your customers need hamburger patties, and your patty machine breaks down) it’s important to know that a technician is nearby and has the necessary parts to fix it…certified parts, not duct tape, WD-40, and some marine grease (true story).
I once had a grinder break down on a Friday when we had a few thousand pounds of beef trim that needed to be ground. The part that broke was only available in Australia, and since it was Friday their office was closed until Monday. I had to wait over a week to have the part delivered and installed, and I could not stop production as we had new carcasses coming into the cooler at a steady rate. We used a back-up grinder that was much smaller and had to be loaded by hand. This experience happened very early in my career, and I’ll never forget it. This lesson taught me that I should always have a strong backup plan, and that the best backup plan is to have a local tech, with parts that can come at a moment’s notice and fix the issue.
Alternately to having a tech locally to call, there is the option of having one a staff member trained to be a technician. There are classes that manufacturers offer that will train in-house maintenance staff to become an expert on a piece of equipment. These courses are not cheap, and often involve travel, but when investing in a $250,000 thermoform packaging machine it may be worth having an in-house tech that knows how to troubleshoot and repair the machine, as well as perform proper PM.
Inventory of wear & tear parts: If sending a staff member to an off-site course to become a technical expert is too expensive, it is advisable that a maintenance staff member is made responsible to perform the PM. Training of basic knowledge sufficient to replace wear and tear components is also highly valuable. There are several items that are worth keeping an inventory of on-hand so that if something breaks it can be replaced quickly. For example, plastic parts, gaskets, valves, buttons, wiring harnesses, and other components that may wear out over time are advisable to keep on hand to reduce down-time when a replacement is needed. These types of parts tend to break due to normal use, and it’s hard to predict when that may happen. Keeping a few of each part on hand is a great investment to save time and money and keep production running smoothly.
When investing a large amount of capital in equipment it can seem daunting to add to that cost with these other factors. Several-thousand more dollars spent on training, parts, service contracts, and planning the placement and installation can seem like overkill at the time of purchase. The equipment is brand new, and easy to operate, how hard can it be?
From someone who has been through many new equipment purchases, contract negotiations, trainings, operations, and ultimately a lot of breakdowns, take it from me…invest in maintenance agreements, invest in your people, invest in the quality of the product, and maintain the equipment according to the recommendations of the manufacturers. These types of investments can be hard to swallow because they often don’t result in direct revenue, and a break-down that never happens is hard to quantify on the balance sheet. But trust me, the lost time, potential injuries to staff or consumers, and the premature degradation of the new equipment you just spent all that money on is even harder to swallow. Especially when it’s the busy season and your customers are screaming at you, “WHERE’S THE BEEF??”