Understanding the cost of ownership

There is a reason that I work for someone else: I don't have that desire to strike out on my own to build a business. The entrepreneurial gene can't be found in my DNA.

So when I'm chatting with business owners, I'm doing so with a lot of respect for their accomplishments. If the shoe were on my foot, I probably wouldn't have any money to invest in a sock to wear with the new footwear.

These business owners, on the other hand, have a healthy respect for cash flow and outstanding debt. They know if the money is not readily available to pay for the expenses of day-to-day operations, they are in serious trouble. They are conservative by nature and, usually, successful as a result.

Of course, a conservative nature may contribute to longevity, but it also can sabotage any potential for growth. The push for increased revenues involves some risk, and that doesn't sit well with some people.

For instance, some business owners can't get past the price tag of new fabricating equipment. They're always looking for a better deal, which results in postponing the investment decision or going the used-equipment route. They aren't looking at cost savings that could result from new technology. They see only the monthly payment for the new equipment. They don't understand the idea of "cost of ownership."

Think about the Yugo. Here was a car that cost only $3,990 in the late 1980s, but that cost of ownership inflated when frequent maintenance costs were taken into consideration, especially if you didn't replace the timing belt in a timely manner.  A car with a slightly higher price tag, but with a better reputation for quality, might have required less maintenance over its lifetime.

I started thinking about this after hearing a couple of stories about fabricating operations that really had no focus on the big picture. One fab shop tossed its turret tooling out when the punches started to dull instead of purchasing a tool grinding station for sharpening the tooling. Another company rejected the idea of purchasing a deslagging machine for plasma-cut parts because managers didn't believe they were incurring any extra cost because the plasma cutting machine operator was using a portable grinder to deslag the parts as he waited for new parts to be cut. Rework costs related to improperly deslagged parts and the possibility of assigning the operator to another machine didn't enter into the equation.

The best part of this story, however, is that those types of story don't seem to be as prevalent anymore. Seemingly, more people understand the benefits of eliminating secondary processes where possible and listening to employees because they are likely to know how they can do their own jobs more efficiently.

Of course, the cost associated with any investment is still an issue, but business owners also are starting to understand the overall cost of not taking appropriate action to stay competitive.