Buy cheap and live expensive

Edited by the Engineeringtalk editorial team Dec 15, 2005

Graham Dawson, Sales Manager for Arrowquint and a Fellow of the Institute of Diagnostic Engineers, questions whether the cheapest product is always the best value.

Obviously it depends on what you want and what you want to do with it, but where plant and machinery are concerned price can become a complex matter.

So, before you fall for the massive discount the salesman is offering, ask yourself, "How much does it really cost?".

The answer is in two parts: the up-front capital cost of purchasing and installing the equipment, and the ongoing revenue cost of running and maintaining the equipment for its projected life.

Most buyers and financiers only look at the capital cost, as this is the price which they believe is most important and which they can influence most.

Also, as the running costs usually come off the operating and maintenance budgets, they are someone else's problem.

As a result, inefficient and maintenance intensive equipment is often regarded as a "good deal" by the buyer if the purchase price is low for the specification offered.

The poor old production and engineering managers are then left to carry the can for high costs and poor productivity caused by a bad buying decision.

The Armed Forces, and the aviation industry generally insist on proper analysis of life cycle costs, reliability and maintainability for any item of equipment before they buy.

In my earlier careers as an aerosystems engineer and an RAF Engineer Officer, I was trained to look at the whole picture of life cycle costing for any proposed item of equipment, rather than simply the up-front purchase price.

When I retired from the RAF for a career in industry, I often bought plant such as air compressors.

I was regarded as slightly odd by most salesmen, as I generally asked for quotes for the total cost of ownership of the installation, based on a 5-year life cycle.

The responses were usually interesting.

Once I had spelled out to each vendor what I had actually asked for a couple of times (How many times do plant and machinery salesmen willingly volunteer information on maintainability, reliability and energy efficiency for their products?), I would receive quotes which varied by up to 100%.

Generally, having weeded out the obvious wild guesses, one tender emerged as the most realistic and got the order.

As a postscript, one unsuccessful vendor rang me up and complained that I had ignored their attractive discounts and bought a more expensive system.

I quite enjoyed explaining to him that his figures showed his system to cost 50% more over a 5 year period than his successful competitor.

The moral of the story? Buying the "cheapest" equipment on capital cost alone is often the most expensive option.

Although capital costs for plant and equipment are usually a budgeted one-off attracting various tax allowances, the ongoing reliability, efficiency and maintainability will affect the bottom line week in, week out for the life of the equipment.

I have never regretted using this purchasing methodology, despite frequent challenges from "professional" buyers, as the end has always justified the means, with fewer breakdowns, lower running costs and longer equipment life.

Now, as a salesman, I welcome customers with a similarly enlightened approach, as I know that I will build a lasting and profitable trading relationship with them.