Quality and the True Cost of Ownership
Making the Right Choice When Purchasing Pipeline Inspection Equipment
Matt Sutton Apr 01, 2009
Municipalities and contractors are faced with difficult decisions when purchasing new inspection equipment. These procurement decisions are all too often based upon initial purchase price and do not take into account the true cost of ownership.
Understanding fixed costs, variable costs and how a specific piece of equipment will affect your return on investment (ROI) over the useful life of the equipment is critical to making informed acquisitions. Capturing these costs and understanding the benefits of quality is not always easy, but with a little work owners can increase the effectiveness of their purchases.
Purchasers have many choices when choosing inspection equipment. Understanding the effect that quality can have on your operation and costs is very important. Equipment that is designed and built to higher quality standards can often increase productivity, reduce downtime and increase overall profitability. High quality equipment will often reduce your operation costs dramatically enough to offset the greater initial purchase price.
Quality is not simply smaller manufacturing tolerances and reduced variance. Quality begins in the development and design of any product. Equipment that is designed to accomplish a task efficiently will consistently outperform equipment that has been designed based upon using lower cost materials or construction methods. Inspection equipment that is designed with features that make an operator’s job easier or provide end-users with more information reduces costs and increases profits.
Quality can also be evident in the sale, distribution and service of equipment. When you do have a problem, are you going to be able to get help? Does the company you are going to purchase from have a knowledgeable sales staff that can help you choose the most effective equipment for your specific needs? Does the manufacturer have a history of success?
There are two basic types of costs. Fixed (direct) costs are costs that typically do not vary according to usage. Examples of fixed costs include: lease payments, rent, benefits, insurance and depreciation. Variable (indirect) costs are costs that rise and fall with output. Examples include: fuel, employee wages, energy usage and repair/maintenance costs. Understanding fixed and variable costs are very important in short- and long-term cost accounting.
Where Do You Start?
First it is important to understand what you want to accomplish with the equipment you are going to purchase. Sales representatives can help guide you to the correct products to meet your needs, but you have to understand what you want to accomplish with the equipment.
What is the scope of your project? Are you primarily going to be inspecting small to medium mainline pipes and/or large diameter lines? Will your efforts be more reactive, or is this part of a long-term proactive assessment program? Manufacturers have products that meet specific capability ranges. Decide what diameters of pipelines will be inspected and look for equipment that matches your required range. Newer, more modern equipment can often add capabilities later due to their modular design, allowing you to grow your capabilities while reducing the need for redundant equipment, decreasing overall operational costs
How large is your project? Will you be inspecting 50,000 linear feet or hundreds of miles? There are newer technologies that can greatly increase your production and lower your operational costs if you are undertaking a large, long-term assessment plan.
How can you expect this equipment to perform? Are you a city or contractor on a tight schedule where every day counts? If so, you will require higher quality equipment that breaks down less often. How long do you expect the equipment to be in service? What about the availability of components as the equipment ages?
What is your budget? This is an important question, but be aware that there are financing options available for contractors and municipalities that can overcome budget constraints.
Also, think about how much you expect to pay for repair and maintenance costs each year. All equipment, no matter how finely crafted, can and will break down in the sewer environment. Lower price, lower quality equipment often requires a larger expenditure year-to-year over higher quality equipment.
What training and employee requirements will there be? This depends on the expertise of your employees and the capability of the manufacturer. Make sure that you purchase from a company that provides you with adequate training and support after the sale. Do not be afraid to ask for and contact manufacturers’ references.
What part will software play in your process? Do you currently use pipe inspection software to log defects and manage information? Is that important for you? Will you want the information you gather integrated into your GIS or asset management systems?
If you have a better understanding of your needs you will be better able to choose equipment that meets them and provides you with the performance you expect. This will arm you to avoid being “oversold” and saddled with equipment that you never use.
Competition Is a Good Thing
Once you have these questions answered it is time to call the manufacturer’s representatives. Make sure to have a discussion with them regarding your expectations and needs. They will often have suggestions that you may have never considered. Technology moves at an incredible pace, and there are inspection systems available today that can inspect pipelines incredibly fast and with quality and deliverables vastly superior to anything that was available just a few years ago. Contact multiple manufacturers and have similar discussions with them. If a sales rep is resistant to you calling his competition or his references it should be a taken as a warning and you should be wary.
Ask each representative to demonstrate the equipment to you. Set up this demonstration in an area where you can see the equipment perform in normal operating conditions. If possible, have them demonstrate in the same pipeline to better evaluate each brand’s features, capabilities and ease of use. As you gather information from various manufacturers, you will begin to understand exactly what features and capabilities are important and you will be able to set minimum specifications requirements.
Look at the True Costs
After you have set minimum requirements and received pricing information the work of determining the best choice begins. Each product will have fixed costs and variable costs. These costs must be weighed against the brand’s productivity potential in order to access the true cost of ownership and return on investment. Spend some time thinking about these cost and productivity factors, comparing each brand and/or technology:
Initial purchase price – The initial price is important, but it is by no means the only factor. Do not forget that there are many manufacturers and dealers who will work with municipalities and contractors to get them the equipment they need and stay within a reasonable budget.
Depreciation, interest and insurance
Production rates – Each piece of equipment has its own capabilities. Do you expect to inspect 1,500 feet per day (estimated national average) or will the equipment you choose inspect up to 5,000 feet per day? Technologies exist that can easily inspect two to three times more per day than traditional CCTV systems. They have a higher initial purchase price, but lower operational costs due to this high production rate.
Employee wages, benefits, salaries – Will the equipment require an increase or a decrease in labor to complete your project on time? Equipment with high productivity rates can reduce your employee cost exposure allowing you to inspect more with fewer dedicated employees. Equipment that is safer and easier to operate can also reduce employee stress.
Vehicle maintenance costs – What do you typically spend to own, license, run and maintain a vehicle? Systems with high productivity can reduce the size of your fleet, reducing your cost.
Repair cost – Is the system going to be costly to repair? How often will it break down? All systems are susceptible to damage, but a well designed system can reduce reoccurring repair costs. If you save $10,000 on the initial purchase price you may find yourself paying well over that each year in repair and maintenance costs.
Lost time due to repairs – Contractors lose money and municipalities get behind schedule when equipment breaks down. If equipment does not break down it is in the field paying for itself and not sidelining personnel.
Features – Does the system provide deliverables that allow the contractor to charge more for their services compared to the competition and the owner to make better decisions regarding infrastructure?
Product lifecycle – Will this equipment last ten years or three? Is the system ready for digital output? Consumer electronic products have a notoriously short life cycle and if the manufacturer chooses to use off-the-shelf components you may find yourself with a system that is outdated in four years. Is the system designed and manufactured to withstand the rigors of use? Does the manufacturer guarantee spare parts availability? The life cycle of a product is critical in determining the overall profitability. and productivity of a piece of equipment. Purchasing a brand that costs 20 percent less, but only lasts half as long is not a wise decision.
It is critical that contractors and municipalities make informed and educated purchase decisions in the current economic climate. Choosing the right equipment can make your life easier, increase your effectiveness and decrease your costs, but you must be cognizant of product quality and the benefits it can provide. Look at the total cost of ownership that a piece of equipment has over the course of its expected life cycle and make purchase decisions based on true costs.
Matt Sutton, M.B.A., is the VP of Sales and Marketing for RapidView IBAK North America. He can be reached at (574) 224-5427 or firstname.lastname@example.org.