Pump Pricing & Total Cost of Ownership (TCO)

Though many plants shop for equipment based on price, industry data shows that purchase costs represent only 10 percent of the total cost of ownership (TCO). Where is the majority of cost?  Energy at 32% and Maintenance at 20%.

This white paper from ITT Goulds Pumps shares the formula for analyzing TCO as part of purchase and design decisions, with case studies showing how five organizations use a TCO approach to yield dramatic savings.

Contents include:

1. The TCO Formula
2. Specifying the right size pump
3. Case study 1: Too much suction causes too many failures
4. Acquisition cost and performance tradeoffs
5. Case study 2: Non-OEM parts go up in smoke
6. Managing inventory
7. Case study 3: Parts problem at paper plant
8. Ensuring quality repairs
9. Case study 4a: 700 maintenance challenges at chemical plant
10. Case study 4b: Oil refinery reforms bad actors
11. Role of operations and maintenance in managing TCO
12. TCO analysis—A powerful tool

Total Cost of Ownership analysis can be used as a basis for decision making in almost any industry or business—including manufacturing, computer systems, transportation, buildings, real estate, and medical and laboratory equipment. TCO analysis provides the critical foundation for making sound decisions about:

• Budgeting (Capital & Expense)
• Planning
• Staffing
• Vendor Selection Inventory Requirements
• Lease vs. Buy decisions

Though the basic concepts are easy to understand, few organizations are able to apply them routinely and across the board. The biggest likely reason is that cost information for each event during the life of an equipment item, like a repair or replacement, is only available and traceable if someone enters the event and associated costs into a system.

Another major reason is that reactive environments prevent managers from staying on track—being diligent about not only recording cost data, but analyzing the data and acting on the results of the analysis. When an emergency occurs in a plant, it puts everyone in a tailspin until production is restored. Managers don’t always get back to the proactive “should-do” activities they were working on before the “must-do” demands of the emergency.

TCO analysis by itself will not solve many problems. What’s needed are leaders who continuously strive to improve performance, supported by workers and managers who are willing to change their behavior and embrace new, more efficient ways of doing things. Organizations that do this well tend to be industry leaders with higher productivity and profitability than their competitors.

But the five case studies featured in this paper do not all match that description. They demonstrate that every effort to analyze and optimize total costs of ownership, instead of acquisition costs alone, is likely to yield a very positive return on investment.  Even small steps can yield big results.