Regarding the investment value of a CNC and its return on investment (ROI).
February 24, 2021
Capital equipment investment is always a challenging task for any workshop. It is common to make the mistake of evaluating equipment only on price and fail to evaluate the total life-cycle costs in anticipation of the equipment’s performance. In the end, acquisition, operation, maintenance, and even decommission costs will affect the machine’s real investment value.
This investment value is known as ‘return over investment’ (ROI for short). A proper evaluation of the ROI will help in making a solid decision about which equipment to purchase, and properly determine the payback time of the machine.
The user usually purchases new equipment to obtain better manufacturing capacity or new/improved production technologies, and certainly, they look for the cheaper options that fulfill these requirements. Yet, proper operation and maintenance costs are usually overlooked, and these bring unwanted surprises to the final cost. The machine’s vendor capacity for personnel training and technical support must also be factored in.
Manufacture process adjustments costs
In relation to operation cost, the introduction of new machines (especially different models than usual) may have an initial impact on productivity, because a state-of-the-art machine, may include designs that, while potentially capable of improving your operation (cycle time, tool life, final quality, etc.), most likely will require changes to the current production processes and/or additional training for the operators. A proper evaluation of these new characteristics and the potential impact on the production process is essential to avoid hidden costs.
Once these issues are properly addressed, it is undoubted that new high-performance machines will likely improve production through their attributes and improvements such as higher-powered spindles, better acceleration, higher rigidity, reduced vibration, or for replacing current machines, absence of wear-downed parts. Improvements will impact the performance of secondary elements such as longer tool life and a reduced wearing rate better cutting performance, further improving operational costs. Then, improving tool life will directly impact other operational costs that are not always easy to detect, such as less operator intervention.
Consumption items costs and operation costs.
In the case of cutting tools, improving cutting conditions will add to savings that are easy to miss because of the apparent low cost of small items, however, when these costs sum up, the operation totals quickly escalate.
For example, a low-end performing machine may require to change cutting inserts with, let’s say, a $60 value, yet, because of the machine’s low-end performance, the tool holder has to be replaced every now and then, adding another $900 expense cost to the operation. The introduction of a new machine with better performance not only extends the cutting insert operation life but completely removes the necessity of changing the tool holder. This simple example illustrates the proper practical comparison when evaluation a machine’s ROI.
Then, a higher performance machine will likely reduce secondary operations such as spotting, hand-finishing, reducing lead and turn-around times, lowering labor cost, and allowing the manufacturer to take on more or bigger orders. Also, better a performing machine usually includes programming or automation features which may allow for unattended and uninterrupted work, reducing labor cost due to low productivity.
ROI of equipment:
Visible costs: Acquisition Price (transportation, installation, training, and set-up services), warranty, and tech support.
Next, it is important to remember that, once production starts, unscheduled downtime may quickly raise the cost and erode savings on a cheaper purchased price; it’s important not to confuse a warranty as insurance against downtime. While operation costs usually include maintenance downtime, a high-performance machine’s maintenance costs are not the same as what they could be compared to an inefficient, less reliable machine. A company’s profitability relies on efficient operations.
Machine lifetime and decommissioning costs.
Finally, after the contract or payments are all done, the manufacturer must decide what to do with the equipment. A low-cost machine usually depreciates after 3-4 years; then it looks inexpensive from the accounting point of view. However, a low-performance machine may be kept working well past its due time. Usually, low-cost machines’ maintenance costs go up quickly while production quality steadily declines, tool consumption rises and scrap product increases.
In contrast, a high-performance machine can extend component life and reliability, reducing maintenance costs and retains a higher value percentage after 3-4 years.
When calculating the ROI of a machine, it is always important to consider the potential advantages of high-performance machine tools when these are used to their full capacities, delivering long-term reliability, accuracy, and performance:
Low-cost machines have minimal value after 3-4 years, while high-end solutions may retain up to 50% value.
The sturdier and higher quality manufacture of high-performance machines will likely improve operating costs and productivity.
On mass-production processes, low-cost solutions end up costing more because of higher up-keep, shorter tool life, increased scrap, and longer downtimes.
Investing in high-performance machining centers instead of lower-cost options may ultimately be a better, more profitable solution for your business.
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