Total Cost of Ownership: Move to Just in Time Replacement

Executive Summary

Effective equipment replacement and selection is more important now than ever to managing total cost of ownership (TCO). Stricter building codes and environmental regulations as well as new and improved high efficiency equipment offerings are adding complexity and increasing pressure to make informed decisions.

Most organizations that operate multiple facilities struggle with the decision of when to replace key equipment. The lack of all relevant data and the time to do a full analysis often lead to a decision to delay replacement as long as possible. Most organizations are unaware that this approach, sometimes referred to as “run-to-fail”, increases the TCO for some equipment types by 10-20%, which may amount to $200,000 or more a year in lost value for an operator of 50 locations.

Accurate measurement and analysis of the major components of Total Cost of Ownership – equipment, installation, energy, and maintenance – provides the foundation to confidently identify and plan equipment replacement that delivers the best return on investment. New technologies enable organizations to capture the data and perform the analyses needed to perform effective replacement planning – and avoid the potentially substantial costs of a run to fail approach.

Introduction

Managing a large fleet of mission critical equipment, often spread across many states and dozens or hundreds of locations, is a challenging task. The need to support high uptime and superior customer experience is balanced against the “death by a thousand cuts” that can come from making financial decisions about repairs or replacement in an uncoordinated way. The end result is a frustrated Operations team, an exhausted Facilities team, and a Financial team who feels they have no effective way to understand and solve the problem. This is a “run to fail” asset management strategy in which all parties toss up their hands and decide that putting off equipment replacement as long as possible is the “least bad” option – if not actually the best one.

However, the run-to-fail model has been demonstrated to actually squander financial resources, as well as risk brand and customer loyalty. How can an organizations realistically do better? Consider Total Cost of Ownership; however, this methodology has not been widely adopted. Why is that? Factors include; lack of data, lack of appreciation for just how significant operating costs are, and lack of tools to perform this type of analysis, particularly at scale.

An array of technologies is becoming available to address this situation – including mobile asset inspection tools, computerized maintenance management systems, energy management systems that capture energy costs of specific equipment, and even connected equipment streaming performance data to the cloud, along with user friendly enterprise decision support tools.

These tools help facilities and operations executives make smart asset management decisions – including both when to replace equipment and with what – in the face of new regulatory standards and building codes that require the selection of more advanced and usually higher efficiency equipment.

For operators seeking to achieve industry leading performance, the financial and operational benefits of better asset management include reduced equipment operating costs, better employee productivity, and better customer experience. This whitepaper explores the way operators can move beyond the run-to-fail model, using new technologies to unlock this value.