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How Can You Justify an Equipment Upgrade?

Eric Frederick |

CHICAGO — The economic slowdown over the past several years has forced many organizations to reprioritize how they invest their money. It is extremely important that managers do a better job of justifying their need for replacement or additional equipment.
New equipment can be justified because it is easier to operate, more dependable, produces more per hour, uses less labor, takes up substantially less space, is easier to maintain, or is more fuel-efficient.
It must save the operation enough money over a maximum of four years in order to justify its purchase.
Major operational expenses, including labor, maintenance, linen replacement and utilities, could be reduced by new equipment.
I prefer justifying equipment based on labor savings. Labor plus fringe benefits represent our largest single expenditure. A good example of this type of justification is the purchase of an automated folder versus hand folding.
You need to develop an accurate picture of the current production method. What items are being folded by hand? How many of these need to be produced each day, and what is the current piece-by-hour production?
Once you have a good picture of today’s production, then you can research possible alternatives. I like to start by talking with other managers about their experiences with automated folders. Each one will have a story to tell. Sometimes, they mention procedures that had to be changed in order to get the most out of the equipment.
Then I will contact the various equipment companies and listen to their claims for each piece of equipment. Local service and parts availability are important factors to consider when purchasing a piece of equipment.
I try to narrow my choices down to two or three different folders; a little competition for my business never hurts.
I like to visit a laundry using the folder we’re considering, which can be especially helpful if that laundry is folding a similar mix of products. I’ll bring a production supervisor and someone from my maintenance department. We want to get a feel for how it is fed, the procedure for changing products, its productivity rate and any maintenance concerns.
Then it is time to evaluate the cost savings associated with purchasing the folder. I like to see a new piece of equipment “pay for itself” within four years. Every FTE costs me $20,550, and I can easily justify a piece of new equipment costing $82,200 by reducing one FTE.
Justifying a new piece of equipment based on increased production is also important. For example, a small-piece ironer is hand-fed and married to a two-lane primary folder. If you can change to a four-lane folder with stacker, you will double the ironer’s hourly output potential and make it easy for one person to handle the products coming out of the folder.
Sometimes, aged equipment becomes too expensive to operate. We recently replaced four older dryers on one of our tunnel washers. Calculations in support included annual maintenance costs, expected fuel savings, and expected reduction in overtime linked to equipment failure. Replacement also increased our hourly tunnel-washer production and reduced linen-replacement expense.
We installed a water-reuse system several years ago and have been able to consistently reuse about 60%. The system was projected on water and sewer savings alone to have a 3.2-year payback, but the actual savings were greater than expected and the project paid for itself in a little more than two years.
Accurate costs and productivity data are the keys to justifying any new or replacement piece of equipment, but being able to show the appropriate cost savings based on the equipment change and then delivering the promised results is important, too. Never promise anything you cannot deliver.
 

About the author

Eric Frederick

Carilion Laundry Service

Director of Laundry Services

Eric Frederick is director of laundry services for Carilion Laundry Service, Roanoke, Va., and past president of the National Association of Institutional Linen Management (NAILM), now called the Association for Linen Management (ALM). He’s a two-time association manager of the year. You can reach him by e-mail at efrederick@carilion.com.

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