Report: Managing Capital Packaging Equipment Spending Through Total Cost of Ownership

Danielle Ohl

Meeting_discussion.jpgPMMI's recent Top to Top Report has revealed the most pressing challenges facing the world of packaging equipment today. First is the desire for quick and easy packaging machine changeover. Next are the continued operational, training, and cost-cutting challenges inherent in the 'thinning' of manufacturing. Thirdly, and the focus of today's article, the Top to Top report revealed that for Consumer Packaged Goods (CPG) companies, determining the Total Cost of Ownership (TCO) of packaging machinery can be difficult. Total Cost of Ownership takes into consideration not only the fixed cost of acquisition but the additional and variable costs associated with packaging equipment over its lifetime.

What Factors Determine Total Cost of Ownership?

For many CPG companies considering a capital packaging equipment purchase, the major mitigating factor is that 'bottom line' number on the equipment proposal. In other words: 'How much is it?' However, another school of thought takes into consideration not only purchase price but Total Cost of Ownership, or what the predicted lifetime costs of acquiring the machinery will be. 

According to PMMI, in addition to the initial acquisition cost of packaging equipment, the following factors contribute to TCO:

• Capability • Quality • Standard components
• Energy • Redundancies • Standardization
• FAT • Safety • Startup time
• Flexibility • Savings • Technology
• Lead time • Service • Training
• Maintenance • Spare parts • Upgrades

Today's Challenges in True Cost of Ownership

Joyce Fassl of ProFood Tech points out some of the biggest challenges in TCO today:

  • Participation of CPGs in reverse auctions that focus mostly on price
  • Materials decisions made by purchasing departments that focus on what is available and what is cheapest 

  • meeting_writing.jpgDetermining the life of an asset 

  • Focus by CPGs on speed to market approach versus TCO calculation 

  • CPGs focus on small components versus large equipment in TCO/line reliability 

  • Not accounting for start-up time 

  • Dealing with predetermined capital expenditures with no wiggle room 

  • Ignoring or not fully accounting for the need to pull operating information from equipment

Many of the above challenges point to a focus on price alone when considering flexible packing equipment. When investing in a long-term asset that is expected to produce for many years to come, purchasing the 'cheapest' machinery can lead to significant upfront savings, but can also lead to significant costs over the long-term if TCO is not properly explored. Sure, a lower cost packaging machine may fit nicely into the current budget, but can end up costing many times its purchase price in maintenance, repairs, and lost production time if due diligence is not taken to determine the equipment's TCO.

Time constraints often are another challenge in addressing Total Cost of Ownership. By the time a CPG company decides they need equipment, it's often crunch time. Answers are needed quickly, specifications that may be unknown are guessed, and through the rush, gathering and sharing of information that will determine TCO is overlooked. Perhaps TCO isn't even a consideration. To properly evaluate a capital equipment purchase, plan for enough time to properly vet your options. After all, your company, employees, and your production processes will have to 'live' with the decision for many years to come.

people_phone_communication.jpgCollaboration and Communication Are Key When Determining TCO

Upon reading the above list of challenges, one of the key takeaways should be to promote open communication and sharing of information related to the packaging equipment acquisition project. This includes both CPG companies and packaging OEMs. When considering a packaging equipment purchase, we recommend to ask the following questions of your packing machine manufacturer to help determine Total Cost of Ownership (TCO):

  • What can I expect for maintenance and spare parts costs? What is a typical predictive maintenance schedule?
  • What kind of training will my staff need prior to start-up? Will you (the OEM) provide said training?
  • Will I need to hire additional technical staff to run this equipment successfully?
  • What if I need technical service for my packing equipment? Is it included in my contract or billed?
  • What are the operating specifications of the packaging machine?

The key to accurate TCO is communication and collaboration between CPG companies and their packaging equipment manufacturer. There is no set process for how Total Cost of Ownership is calculated, so decide together as to how TCO will be determined and share information that will allow for the most accurate calculation. 


CTA project planner DL.pngPackaging Equipment Project Planner

Overwhelmed with the amount of planning needed for a successful packaging machine purchase and installation? You're not alone. Download our free Packaging Equipment Project Planner to help you fine-tune the details.