When looking for new factory equipment, is your main concern the price tag? While the cost of capital outlay is a key consideration, you may be missing a more important issue: the long-term life cycle cost (LCC) of running the equipment. The initial investment is only the visible part of the iceberg. This is especially relevant in the current climate of soaring energy bills.
Life cycle cost is an important consideration when purchasing anything from compressed air systems, vacuum pumps and nitrogen generators to HVAC systems and chillers.
What are the three elements of LCC?
The three elements of LCC are: capital outlay, energy costs and maintenance.
For example. the initial purchase price of a compressor – and most other machinery – accounts for very little when it comes to LCC, approximately 10%. Meanwhile, up to 80% of your outlay over the lifetime of the machine is likely to be on energy costs.
The remainder of the LCC is servicing and maintenance. This includes the cost of consumables, such as air and oil filters, refrigerants and valves, plus professional labour. These costs can be better managed with a service contract.
LCC is also known as the ‘Cost Iceberg’, as the initial capital outlay is only a small part of the hidden whole.
Why carry out a Life Cycle Cost Analysis for your equipment purchase?
Many companies are missing out on potential cost savings from their compressed air systems and other factory machinery. In terms of compressed air, as well as ensuring that you have purchased the right size compressor for your application, significant energy savings can be found in areas such as:
- Air leak identification and repair
- Energy recovery systems
- Pressure reduction
- Regulation and control systems
A Life Cycle Cost Analysis can help you to evaluate the best machinery for your application – over the long term.
It can also help when purchasing other equipment, for example a new chiller can reduce energy use by up to 30% on a full load and up to 50% on a part load when you move from a fixed speed to variable speed machine.
How to carry out a Life Cycle Cost Analysis
Your LCC Analysis should be carried out with input from one of our experienced sales engineers. While there are always going to be some uncertainties, such as the cost of energy in five or 10 years’ time, our engineers will take a wide range of factors into account, including the cost of the capital outlay, the running costs and the maintenance and servicing costs.
There are several life cycle cost considerations when you are trying to future proof your purchase. This includes the need to:
- Manage the rising costs of energy
- Increase production
- Increase production quality
- Ensure production safety
- Reduce the risk of downtime and rejections
- Reduce your environmental impact
- Move to more optimised operations
An analysis of your future needs as well as your current needs will ensure you select the right machinery and save money in the long run – whether you’re purchasing a compressor, vacuum pump, nitrogen generator, HVAC or chiller system.
This may mean a larger initial outlay to secure a higher spec compressor that will better meet your needs and reduce your energy bills over the life cycle of the machine. It’s about investing wisely, rather than buying the cheapest compressor model for your application.
What is Life Cycle Profit?
Life Cycle Profit (LCP) represents the earnings you can achieve through a variety of ways, from reducing rejections to energy recovery. Another consideration is whether you would prefer your equipment to be in its original condition or fully used at the end of the LCC period.
If you would like help calculating the Life Cycle Cost of a new purchase, please fill in our online form, email us at: [email protected] or call us on 01422 321 772.