In last week's blog post, we discussed the cost side of justifying the purchase of inert, corrosion resistant coatings. If you thought the total coating cost associated with a SilcoTek® purchase was only the price, your head may still be spinning from considering all the factors when tallying costs. Now let's take a look at the coating benefit side of the calculation and see if we can keep our sanity, hopefully...
First we'll discuss some generic factors to consider, then we'll do a sample cost benefit analysis in part 3 (and thankfully final part of our series) to pull the cost & benefit side of the equation together.
Benefit Factor 1: Efficiency
Be it faster analyzer results, more injections per hour, less burn-in time, quicker response time, more volume per hour or more machine "up time". Consider how much faster or how much longer your process, equipment, component, or instrument can operate before and after coating. Processing more with the same equipment reduces capital and operational cost. So for example, improving corrosion resistance of a widget in your instrument may allow that instrument to operate longer, extending the operation cycle of the line or requiring fewer back up systems when doing maintenance. You may also reduce maintenance labor and improve production line productivity. So there's lots of efficiency related benefits to consider. Here's a sample efficiency calculation guide for future reference when doing a cost benefit calculation.
Consider the following efficiency related benefits:
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Improved labor efficiency. More widgets for the same labor hours, less overtime etc.
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Reduced support labor. Less maintenance or supervision.
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Increased machine efficiency. More parts per machine hour means more widgets per work station per day.
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Reduced capital cost: If your line runs longer or makes more widgets, you'll need fewer machines to do the same work, or you'll need fewer back-up systems because production runs longer without downtime.
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Better production planning and on time performance. Less downtime can help improve plan performance and a more reliable production system. This can avoid late delivery penalties, or a low vendor score which can lead to loss of business.
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Higher reliability means added value to the customer. If you're able to improve delivery time as a result of a more robust production system , you may open the door to quoting shorter lead times or offering an expedite fee for improved performance. Here's a more in-depth dive into calculating machine and labor efficiency.
Benefit Factor 2: Yield
Inert coatings prevent product contamination, prevent loss or corruption of samples, and improve instrument accuracy, which will improve process control. Yield improvement is the best way to improve profits.
Just a 1% improvement in yield means a 1% improvement in bottom line profit margin. That's because you're making more product with the same amount of labor, equipment, and raw materials; so virtually all yield improvement goes directly to the bottom line. Conversely poor yield can increase rework to the point of wrecking a company faster than this hamster can eat a burrito. Trust me that's fast! See for yourself.**
Sorry for the distraction, I thought you needed a break from all this cost benefit stuff....
Factors to consider on the yield improvement side are:
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Increased output: Making more with the same material, labor, and equipment.
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Reduced waste. Lower disposal cost and environmental impact.
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Less raw materials.
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Lower capital. You won't need to buy more equipment if you can make more with the existing equipment.
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Less overhead: Energy, water/resources are reduced if you don't have to make something that doesn't make it out the door.
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Less rework, some overlap here with efficiency, but if you get something right the first time, you save on labor, machine time, & capital cost reworking the part.
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Fewer inventory woes: If you have to make more stuff due to low yield, don't be surprised if you run out of raw material inventory. That will shut down your line at worst, at best you'll get a few more gray hairs scrambling to order more inventory that you may end up paying more for because your vendor had to expedite the order.
Benefit Factor 3: Lower cost of quality
If your product or process is improved by using inert coatings (for example better performing products, more durable or longer lasting, improved corrosion resistance, or inertness) the number of quality issues will decrease; consequently the cost of quality will go down. You'll spend fewer hours dealing with disgruntled customers or spend less time filling out quality reports or dealing with emergency customer audits.
Cost of quality factors to consider are:
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Fewer returns or lower warranty costs. If your product performance improves, the customer is less likely to return the product; also roll in replacement cost, penalties, rework/repair of the part, management, supervision, engineering and production time spent dealing with the crisis and scrap costs.
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Increased sales due to customer loyalty. Product reviews are everywhere. Improving your product means a better reputation and more sales.
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Improved product value. Making product that lasts longer or performs better than the competition means you may have the opportunity to justify a higher price to the customer; or will spark more demand for your product which will increase production volume and plant utilization.
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Reduced troubleshooting: A more reliable product means fewer customer complaints, product investigations, emergency audits, and claim settlements. This may be the biggest headache and potentially a very high cost for the company. Get too many complaints in the B2B environment and you risk getting kicked off the approved vendor list. So huge potential bottom line impact here not only for the nagging time spent in audits or quality reviews but in customer retention.
Here's more information about factoring in the cost of quality into your cost/benefit analysis.
Benefit Factor 4: Regulatory and contractual compliance
Improved reliability, process control and improved test reliability can keep regulatory and contractual penalties at bay. Failure to comply with environmental monitoring regulations, safety regulations, or customer requirements can lead to fines, expensive process or product redesign, or customer quality intervention (see factor 3). Factors to consider are:
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Improved monitoring and control reliability: A sample system or process monitoring instrumentation out of control can cost in increased emissions, lost production, or poor yield.
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Regulatory & contractual compliance: A reactive or corroded sampling flowpath, control system, or instrumentation can risk failure to detect and control emissions or process failures. You may run afoul of regulations; resulting in fines or penalties, or violate contractual obligations which trigger customer penalties.
The Intangibles
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Higher morale: It's estimated that low morale costs the US economy $350 billion a year. Using inert coatings that reduce rework or improve yield prevents a company from having to make the same thing twice. Nobody likes to think their effort is wasted, so the cost savings related to morale can be big.
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A happy customer: That's what it's all about! Happy customer = more orders.
Intangibles are difficult to quantify. Any "feel good" or intangible factors may not be realistic or valid to put into our cost benefit analysis because it's not worth the time and money to do surveys or investigations into coming up with an assignable benefit dollar amount.
Next week we wrap up with a sample calculation. Finally.....
Want to learn more about how our coatings can benefit your products or processes?
*Image credit: Rankia.com
**Image credit: Slate.com
