Due Diligence Series #4
Large capital expenditures carry that significant price tag up front, but cost of ownership doesn’t stop with acquisition. When making such a purchase, part of doing your due diligence is anticipating and researching total cost of ownership over the life of the product.
Seeking Service Life
The first consideration in determining total cost of ownership is how long you expect to keep the item. What is the average serviceable lifespan of this equipment, if maintained to factory recommended specifications?
If you don’t know, ask the vendor. In fact, ask multiple vendors, because they may be tempted to skew the numbers in favor of their own offerings. Better yet, do an online search using a Boolean term such as “average service life + [name of product].” If you can’t find a general parameter, include potential brand names you’re considering inside the product name (delete the brackets).
Do They Stand Behind Their Offerings?
Another rather obvious consideration of total cost of ownership is whether or not the product carries a warranty. If so, what is that warranty, specifically?
This is the time to read the small print, before you’ve committed your money. If you don’t understand any terms or meanings, now is the time to ask clarifying questions of the salesperson. And don’t settle for vagaries: Demand explicitly defined answers to all your questions, and don’t stop asking until you’re satisfied you’ve been told the truth, and all of it. These are not questions you’ll want to have to justify not having asked later, should something go wrong.
Speaking of warranties, are these promises based on actual testing of the item for performance and reliability? If so, is that done solely in-house, or is the manufacturer confident enough to subject its products to objective, third-party testing?
The testing alone isn’t really enough to tell you much, so you’ll want to ask if test results are readily available from the manufacturer. They should be willing and able to provide you with product spec sheets carrying all applicable information. This might serve as a good bellwether for setting your expectations of long-term cost of ownership.
Don’t Forget Consumables.
Of course, you can’t know every scenario that might face you down the road as an owner of the product you’re considering for purchase, but you can definitely create some kind of basic projections for what it’s going to cost to replace worn or lost parts. Ask the vendor about the average cost for consumable parts on the product you’re looking at, and how easy it is to get those parts if and when needed.
Another factor in long-term cost of ownership is the time it takes you to wait for such parts. Ask about average turnaround time for consumable supplies, delivery and repair requests. Include questions about shipping costs, which can often be significant, especially for more heavy-duty equipment.
What about ease of sourcing for such consumables? Are some repair parts proprietary, or can they all be purchased at a local hardware store or home center? This seemingly small detail can easily derail a project schedule if not planned for ahead of time, and we all know time lost is money lost.
Cleaning and Maintenance
Find out the manufacturer’s suggested cleaning and maintenance schedules, and what they consider mandatory. How easy will it be to keep the equipment under consideration clean and properly maintained on an everyday, weekly, monthly and quarterly basis? This is a regular and ongoing cost of ownership that can really add up over time, but if you take care of it, won’t morph into an unpleasant surprise down the road.
Speaking of which, you need to consider unplanned maintenance, as well. How easy is it for your own crews to perform minor field repairs on the product in question? If turnaround time isn’t quick, will the vendor provide a loaner replacement until yours is back online? If so, will it cost you anything?
Of course, there will be some maintenance that will cost money, even if it’s not unplanned. Explosion-proof equipment requires factory refurbishment due to safety considerations, but make sure you know about this up front.
Training Can Cost or Save You.
One of the long-term costs of ownership frequently overlooked at shopping time is training. What does the manufacturer offer in the way of training your crews to use and maintain their products? Do they make it easy for you to take advantage of? Will they come to you, or must you go to them? Have they made an effort to pack as much information into their training modules as possible, to take up as little of your crews’ time as they can while still imparting needed wisdom and experience?
Accessibility of Technical Support
The last factor you need to consider is how easily you can get technical help related to your purchase. The best in the world is of little value if it’s not accessible when you need it. How is the vendor staffed for such support? Do they provide several avenues (phone, text, email, in person) through which they can be contacted? Are they available during the hours you’re most likely to need them?
Adding It All Up
Take notes on all of these points and attach figures to those that can be anticipated. Make a matrix or spreadsheet containing a column for each point, and fill in those figures for each potential purchase candidate. This will help you compare apples to apples, and refer back to the comparison as needed. Add up all the figures and at the end of this document you will have created the proverbial (and literal) bottom line.
Now you can make an informed decision based on realistic, total cost of ownership for each piece of equipment you’re considering.
Next up: Our final post in this series, dealer/distributor considerations