News & Events

Download full pdf

• Click here to download a full pdf of the current issue (2,75 MB)

Automation Today

• Overview
  Efficiency - Your key to competitiveness

News and events

• Automation University across the EMEA region
• Automation Fair 2006
• Brau Beviale 2006
• Event diary

Case studies

• The Rockwell Automation Integrated Architecture proves itself in a high-demand food packaging environment
• Gaining a competitive edge thanks to close work with Rockwell Automation and the implementation of the latest Allen-Bradley hardware
• Maintaining quality through tightly controlled process variables

Technology watch

• OEMs benefit from FactoryTalk and Integrated Architecture
• Process control – an integrated approach
• The evolution of machine safety

Product Focus

• Servo drive technology available in expanded power ranges
• Ideal batch solutions for smaller operations
• Drives management goes wireless
• Add more flexibility and reliability

Calculating total value of ownership for OEMs

Building reliable, productive machinery is important for most OEMs – however, many are also driven to produce equipment that sets them apart from the competition. By Burkhard Balz, European OEM Team leader.

While technology is one variable OEMs often use to differentiate themselves, time-to-market and pressures relating to total cost of ownership are forcing them to look beyond just the initial purchase price of automation components. Now, more than ever, they need to consider variables such as overall equipment effectiveness (OEE) as well as other long-term performance metrics.

The Emergence of Total Value of Ownership
Traditionally, OEMs have used tools like Return on Investment (ROI) and Total Cost of Ownership (TCO) to calculate cost implications. While these are effective, TCO appraisals often miss an accurate measurement of any overall long-term business impact or revenue-enhancing effects that result from TCO methodologies, such as purchasing or using a particular solution or service.

Today, delivering benefits beyond the initial purchase price is critical to an OEM as they strive to become the customer’s true “value-add” partner. This signals the emergence of another important variable – Total Value of Ownership (TVO). There are many ways OEMs can calculate, improve and measure Total Value of Ownership.

Deliver products and services that reduce TCO
While much of the focus of Total Value of Ownership is on the tangible value of an offering, it also assigns value to intangibles, like the value derived from a supplier or distributor partnership. This combination provides a means to measure and validate the “Total Value” earned at all levels of the organisation from incremental TCO programmes implemented.

In order for the OEM to be considered a value-add partner, they have to demonstrate the ability to meet the end user’s most urgent demands. To do so, the OEM must determine the product features or services that will have the greatest impact on reduction of their customer’s TCO and deliver it in a way that emphasises benefits and value. The following are some recommendations for delivering value:

• Assets – Demonstrate ability to reduce an end user’s total cost of ownership, as ownership costs often account for 15 to 35% of the customer’s total assets.

• Processes – Demonstrate the ability to reduce a customer’s process costs by highlighting product capabilities of change management solutions.

• Purchasing – Demonstrate the ability to reduce expected annual purchase cost requirements.

• Revenue – Demonstrate impact on end user’s revenue stream. To do so, look at time saving automation approaches that help increase the utilisation of existing personnel.

Emphasise the Benefits of Standardisation
When evaluating suppliers and vendors, OEMs typically employ one of two primary approaches. The first is the multi-vendor approach, where an OEM switches or “jumps” from one supplier to another in order to find the lowest component price. Although simple in principle, it typically leads to a more complex, higher-cost system.

The second, more effective approach is to adopt a standardisation programme that requires an OEM’s commitment and discipline to focus on applying common technologies in conjunction with using best practices and standard designs to deliver value at all levels. By reusing engineering efforts, standardisation drives shorter design cycles, helps simplify technical issue resolution and more importantly allows the engineering staff to focus on core competencies that lead to a competitive advantage.

Urge the consideration of long-term ownership cost of technology
An OEM’s ability to deliver value can be greatly impacted by how it accepts and leverages new technology. End users today are increasingly moving toward integrated control platforms and architectures, realising that these solutions allow for more simplified software development & design and reduced time to market. The OEM’s most challenging role is to urge the end user to consider the long-term ownership cost of technology, and steer them away from short-term cost evaluation.

Total Value of Ownership: steering away from cost-only comparisons
OEMs realise that cost calculations of individual parts are not the only variables in evaluating automation and control technology. Absent from cost-only calculations are any consideration of the value that results from a strong supplier partnership along with an integrated control architecture or solution that can be rapidly implemented, and the inherent benefits of standardisation.

Building on the importance of calculating TCO by adding in the calculation of Return on Investment (ROI), the emerging Total Value of Ownership approach captures total cost considerations as well as performance advantages – enabling the OEM to create value for its customers. It may not be an intuitively obvious solution, but it’s one that will offer long-term benefits far beyond just calculating cost.

By delivering products and services that reduce TCO, focusing on standardisation and considering the long-term ownership cost of technology, OEMs can achieve and calculate Total Value of Ownership. It is then that the OEM can become the customer’s true “value-add” partner.