Upfront Costs vs. Total Cost of Ownership for Food Processing Equipment

Total cost of ownershipFood processing equipment is a significant capital investment. Whether you’re a small company upgrading from batch to continuous processing or a large company incorporating new processes into your production line, you need to do your due diligence to ensure each piece of equipment will help you reach your business goals.

If you’ve researched new equipment lately, you’ve undoubtedly encountered the phrase “total cost of ownership,” or TCO. As you know, there are more costs associated with any new machine than just what’s on the price tag. Every machine you install in your plant requires labor, energy, maintenance, and other activities that add to your costs. Depending on the machine, your facility, your processes, and a variety of other factors, these indirect costs can range anywhere from practically negligible to prohibitively expensive.

By focusing on the total cost of ownership, rather than just the upfront purchase price, you’ll be better able to determine how much you’ll really spend on a new machine and how much that equipment will save — or cost — you down the road compared to the alternative options. It’s important to know have a clear picture of these items because, in the long run, it’s the total cost of ownership, not the sticker price, that will determine a machine’s value to your company.

In the food processing industry, there’s no one single way to calculate TCO. Every machine and every process is different, and all processors have unique requirements. However, certain factors should always arise in any TCO discussion, because they’re widely applicable across plants and applications. In this article, we’ll look at eight factors that belong in any TCO calculation for food processing equipment, particularly the type of thermal processing equipment we specialize in here at Unitherm.

Expected lifespan

It’s common, when assessing the cost of machinery, to think in terms of payback time (i.e., “By boosting productivity, saving energy, etc., it will take X years for this equipment to pay for itself.”)

Payback time is certainly an important metric. But don’t forget to put it in the context of the machine’s expected lifespan.

You may find a low-cost machine with a 12-month payback period. But, if that machine breaks down and requires major repairs or replacement after 13 months, you’re back where you started without ever reaping the bottom-line benefits you were likely hoping for. And you’re stuck with a big repair or replacement bill to boot. With its short lifespan, the TCO of that low-cost machine will actually be higher over time than the TCO of a higher-quality machine that would run for 15, 20, or even 25 years without a hitch.

Maintenance and spare parts

Every machine requires maintenance to keep it running at peak efficiency. And, of course, proper maintenance will help guarantee that your equipment reaches its full expected lifespan.

One way to keep maintenance costs down is to do it preventively rather than reactively. This approach saves money on the actual maintenance activities and also saves you from losses due to unplanned downtime.

This article from Food Online provides a good guideline for considering maintenance costs:

“Depending on how frequently preventive maintenance is performed, the annual cost of machine maintenance should be about 3 to 5 percent of the purchase price of the machine. Therefore, on a $1 million machine, the service and parts would total between $30,000 and $50,000 annually.  A cheaper, lower-quality machine will typically have maintenance costs between 10 to 15 percent of the machine purchase price, and these annual numbers typically increase as time goes on.”

As you can see, once you factor in maintenance costs, that lower-quality machine might not be the less expensive option over the long run.

When evaluating equipment, you should also ask the supplier about spare parts. Just like lightbulbs in your house, certain parts need to be replaced regularly to keep machines performing at their best. For example, if you purchase one of our gas infrared cookers, we recommend you keep some spare burners on hand. This will help you minimize downtime because you can rotate the burners for thorough and proper cleaning without interrupting production.

Whether or not you choose to purchase spare parts in advance is up to you. However, do be sure you know what parts are most likely to need replacing and how much they cost, so you don’t get sticker shock when replacement time rolls around.

Labor

Labor factors into the TCO of a piece of equipment in several different ways, including the maintenance costs discussed in the previous section. You also need to consider the cost or savings of the employees who operate the machines every day.

Suppose you’re choosing between a $500,000 batch processing oven and a $1 million continuous processing oven. Let’s ignore, for the moment, the quality, safety, and efficiency advantages of continuous processing and just look at the cost of labor.

You run your ovens 24 hours a day, in three shifts. For the batch process, you need one person to oversee the machine on each shift, which means three employees. Let’s say you pay each operator $35,000 a year in salary, which translates to something closer to $45,000 once you factor in taxes, health insurance, paid time off, training, workers’ comp, and so on. That means you’re spending $135,000 per year on labor to run your $500,000 machine. If wages stay the same over 10 years, you’ll pay $1.35 million just in labor costs.

Batch Processing Equipment

Upfront Cost Labor (10 Years) Total Cost
$500,000 $1,350,000 $1,850,000


Now let’s look at the continuous processing oven. Again, you run 24 hours a day, divided into three shifts. In this case, though, since the process is fully automated, you don’t need three employees dedicated to a single machine. In fact, on each shift, you can have one employee overseeing three different machines, meaning that, even after you factor in taxes and everything else, the annual cost of labor dedicated to this machine is only $15,000.

Continuous Processing Equipment

Upfront Cost Labor (10 Years) Total Cost
$1,000,000 $150,000 $1,150,000


In this scenario, even though the continuous processing equipment is twice as expensive, it will save you $700,000 over 10 years in labor costs alone. Expand that out to 15 or 20 years, and the savings will only increase.

Obviously, this is a simplified calculation, but it illustrates how drastically different the upfront cost of a machine can be from its TCO.

Productivity

The desire to increase productivity is a major driver for making capital investments. Especially in an industry with high competition and low margins, maximizing productivity is the only way for food manufacturers to survive.

There are several ways to calculate productivity, so we’ll simplify it down to two key elements: uptime and performance.

In an ideal world, all downtime would be planned as every minute of unplanned downtime increases the TCO of any machine. Proper maintenance can go a long way toward helping you realize this ideal. Another thing to look for in food processing equipment is a CIP system that allows for efficient changeovers.

Your TCO will also go up if your machine isn’t running at peak performance. If your target production run is 4,000 lbs/hour, but you can only get reliable results at 3,800 lbs/hour, you might have trouble reaching your desired throughput, potentially putting contracts in jeopardy. Instead of purchasing a less expensive machine that maxes out at 4,000 lbs/hour and constantly pushing it to the limit, you’d be better off spending a bit more on a machine capable of producing 5,000 lbs/hour and running it at 80% capacity. This approach will also help you futureproof your operations, which we’ll look at next.

Flexibility and scalability

We’ve been talking about the long-term value of equipment. So let’s be optimistic! Hopefully, your business will grow every year, thanks to a combination of new contracts and new products.

By selecting flexible and scalable equipment today, you’ll be able to meet these demands without having to make significant investments in new equipment at every turn. For example, our Spiral Ovens can be used for a wide variety of applications — everything from cooking bacon to roasting vegetables, cooking rice, and even pasteurizing CPET trays.

They’re also scalable. We always sell our Spiral Ovens to maximize throughput, giving you room to grow. The machines also come in many different sizes, so you can purchase the one that fits your needs today with the knowledge that, when your business grows, you can upgrade to a larger size without having to transition to an entirely new system, retrain your staff, and so on. We also offer a unique buy-back program. If your growth happens after investment, we’ll buy back your machine to make it more affordable for you to scale up.

How does this relate to TCO? By selecting flexible and scalable equipment today, you can make sure you’re well positioned to adapt to your customers’ needs in the future without having to buy all new equipment.

Footprint

One of the most significant costs associated with a piece of equipment is the land where it will be located. As you know, real estate is expensive, which is part of the reason why productivity, flexibility, and scalability are so important.

And it’s why your equipment footprint should be as small as possible, so you can maximize your productivity per square foot. For example, rather than investing in a multi-million dollar batch or linear system, which tend to take up a lot of room, you can lower your TCO by choosing a vertical or spiral system instead. If you’re building a new facility, you won’t need one that’s quite so big. If you’re working within an existing facility, you’ll be able to save some of your existing footprint for other machines and processes.

Energy usage

Energy efficiency is a top concern of processors today. Reducing how much energy you use is good for the environment and for your bottom line.

Your energy usage, and how much you can save by reducing it, varies widely between plants and processes. However, it’s not uncommon for an energy-efficient machine to confer energy savings of 30% to 50%, which can translate into thousands, or even tens of thousands, of dollars per year. If energy prices go up, those savings will become even more substantial.

Product quality and safety

Finally — and this is definitely a last-but-not-least situation — the true cost of a machine depends on the quality and safety of the product it produces.

Batch systems, though less expensive upfront than continuous systems, often produce inconsistent quality in terms of coloring and cook levels. You have to throw away perfectly good food because it isn’t the right color. And you know the risks of inconsistent cooking: overcooking food lowers your yield; undercooking poses a potential health risk that could lead to a recall. Less expensive equipment also tends to result in higher yield loss, often because it requires longer cooking time. All of these things drive up the TCO of a machine, often quite significantly.

Overall, a machine that provides consistent, high-quality results will always have a favorable TCO compared to one that doesn’t, because quality is what will bring your customers coming back for more. A reputation for quality will also present you with opportunities to expand your relationships with current partners and sign more contracts with new ones.

And, it should go without saying that safety should always be a consideration, especially with FSMA. Food processing equipment built to modern sanitary design standards will help you avoid a recall and its associated costs.

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These are not the only factors that determine your total cost of ownership, but they are significant ones. If you’d like more information about the TCO of any of our equipment, please contact us. If you’re interested in learning more about TCO for food processing equipment in general, the PMMI OpX Leadership Network has an on-demand webinar on total cost of ownership for food processing capital equipment. You can watch it for free here.

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