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    Rational Cost Analysis

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    Kern USA
    The document discusses rational cost analysis and total cost of ownership for mailroom equipment. It notes that while Vendor P had a lower upfront price, analysis showed Vendor K had significantly lower total costs of ownership over time due to factors like labor costs, maintenance costs, downtime impacts, and floor space usage. Considering total cost of ownership revealed Vendor K to be hundreds of thousands of dollars cheaper over several years rather than just looking at the initial purchase price. The document advocates for comprehensive total cost of ownership analysis rather than conventional logic when making major purchasing decisions.

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    Rational Cost Analysis

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    Kern USA
    39 views46 pages
    The document discusses rational cost analysis and total cost of ownership for mailroom equipment. It notes that while Vendor P had a lower upfront price, analysis showed Vendor K had significantly lower total costs of ownership over time due to factors like labor costs, maintenance costs, downtime impacts, and floor space usage. Considering total cost of ownership revealed Vendor K to be hundreds of thousands of dollars cheaper over several years rather than just looking at the initial purchase price. The document advocates for comprehensive total cost of ownership analysis rather than conventional logic when making major purchasing decisions.

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    A presentation from Kern Evolved 2013 by Kern Global's Mark Johnson on Total Cost of Ownership.

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    The document discusses rational cost analysis and total cost of ownership for mailroom equipment. It notes that while Vendor P had a lower upfront price, analysis showed Vendor K had significantly lower total costs of ownership over time due to factors like labor costs, maintenance costs, downtime impacts, and floor space usage. Considering total cost of ownership revealed Vendor K to be hundreds of thousands of dollars cheaper over several years rather than just looking at the initial purchase price. The document advocates for comprehensive total cost of ownership analysis rather than conventional logic when making major purchasing decisions.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
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    39 views46 pages

    Rational Cost Analysis

    Uploaded by

    Kern USA
    The document discusses rational cost analysis and total cost of ownership for mailroom equipment. It notes that while Vendor P had a lower upfront price, analysis showed Vendor K had significantly lower total costs of ownership over time due to factors like labor costs, maintenance costs, downtime impacts, and floor space usage. Considering total cost of ownership revealed Vendor K to be hundreds of thousands of dollars cheaper over several years rather than just looking at the initial purchase price. The document advocates for comprehensive total cost of ownership analysis rather than conventional logic when making major purchasing decisions.

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    of 46

    Rational Cost Analysis

    Mark Johnson Kern Global

    WHY???

    Prove It

    HOW, with So Many Variables

    Equipment Models???

    Speed (Cutter & Inserter)???


    Equipment Models???

    Equipment Cost (Price)???


    Equipment Models??? Speed (Cutter & Inserter)???

    Monthly Mail Volumes???


    Equipment Models??? Speed (Cutter & Inserter)??? Equipment Cost (Price)???

    Pre-Sort & Postage???


    Equipment Models??? Speed (Cutter & Inserter)??? Equipment Cost (Price)??? Monthly Mail Volumes???

    Page Counts Per Envelope???


    Equipment Models??? Speed (Cutter & Inserter)??? Equipment Cost (Price)??? Monthly Mail Volumes??? Pre-Sort & Postage???

    Page Distributions???
    Equipment Models??? Speed (Cutter & Inserter)??? Equipment Cost (Price)??? Monthly Mail Volumes??? Pre-Sort & Postage??? Page Counts per Envelope???

    Labor Costs???
    Equipment Models??? Speed (Cutter & Inserter)??? Equipment Cost (Price)??? Monthly Mail Volumes??? Pre-Sort & Postage??? Page Counts per Envelope??? Page Distributions???

    Employee Benets Costs???


    Equipment Models??? Speed (Cutter & Inserter)??? Equipment Cost (Price)??? Monthly Mail Volumes??? Pre-Sort & Postage??? Page Counts per Envelope??? Page Distributions??? Labor Costs???

    Floor Space???
    Equipment Models??? Speed (Cutter & Inserter)??? Equipment Cost (Price)??? Monthly Mail Volumes??? Pre-Sort & Postage??? Page Counts per Envelope??? Page Distributions??? Labor Costs??? Employee Benets Cost???

    Electricity and HVAC???


    Equipment Models??? Speed (Cutter & Inserter)??? Equipment Cost (Price)??? Monthly Mail Volumes??? Pre-Sort & Postage??? Page Counts per Envelope??? Page Distributions??? Labor Costs??? Employee Benets Cost???

    Value of Floor Space???

    Damaged Pieces &


    Equipment Models??? Speed (Cutter & Inserter)??? Equipment Cost (Price)??? Monthly Mail Volumes??? Pre-Sort & Postage??? Page Counts per Envelope??? Page Distributions??? Labor Costs??? Employee Benets Cost??? Value of Floor Space??? Electricity and HVAC Consumption???

    Service and Maintenance???


    Equipment Models??? Speed (Cutter & Inserter)??? Equipment Cost (Price)??? Monthly Mail Volumes??? Pre-Sort & Postage??? Page Counts per Envelope??? Page Distributions??? Labor Costs??? Employee Benets Cost??? Value of Floor Space??? Electricity and HVAC Consumption??? Damaged Pieces & Replacement Costs???

    Spare Parts???
    Equipment Models??? Speed (Cutter & Inserter)??? Equipment Cost (Price)??? Monthly Mail Volumes??? Pre-Sort & Postage??? Page Counts per Envelope??? Page Distributions??? Labor Costs??? Employee Benets Cost??? Value of Floor Space??? Electricity and HVAC Consumption??? Damaged Pieces & Replacement Costs??? Service & Maintenance Costs??? Cost of Spare Parts???

    Down Time???
    Equipment Models??? Speed (Cutter & Inserter)??? Equipment Cost (Price)??? Monthly Mail Volumes??? Pre-Sort & Postage??? Page Counts per Envelope??? Page Distributions??? Labor Costs??? Employee Benets Cost??? Value of Floor Space??? Electricity and HVAC Consumption??? Damaged Pieces & Replacement Costs??? Service & Maintenance Costs??? Cost of Spare Parts??? Impact of Down Time???

    Staff Productivity???
    Equipment Models??? Speed (Cutter & Inserter)??? Equipment Cost (Price)??? Monthly Mail Volumes??? Pre-Sort & Postage??? Page Counts per Envelope??? Page Distributions??? Labor Costs??? Employee Benets Cost??? Value of Floor Space??? Electricity and HVAC Consumption??? Damaged Pieces & Replacement Costs??? Service & Maintenance Costs??? Cost of Spare Parts??? Impact of Down Time???

    Supervision???
    Equipment Models??? Speed (Cutter & Inserter)??? Equipment Cost (Price)??? Monthly Mail Volumes??? Pre-Sort & Postage??? Page Counts per Envelope??? Page Distributions??? Labor Costs??? Employee Benets Cost??? Value of Floor Space??? Electricity and HVAC Consumption??? Damaged Pieces & Replacement Costs??? Service & Maintenance Costs??? Cost of Spare Parts??? Impact of Down Time??? Staff Productivity???

    Management Costs???
    Equipment Models??? Speed (Cutter & Inserter)??? Equipment Cost (Price)??? Monthly Mail Volumes??? Pre-Sort & Postage??? Page Counts per Envelope??? Page Distributions??? Labor Costs??? Employee Benets Cost??? Value of Floor Space??? Electricity and HVAC Consumption??? Damaged Pieces & Replacement Costs??? Service & Maintenance Costs??? Cost of Spare Parts??? Impact of Down Time??? Staff Productivity??? Supervision???

    Equipment Models??? Speed (Cutter & Inserter)??? Equipment Cost (Price)??? Monthly Mail Volumes??? Pre-Sort & Postage??? Page Counts per Envelope??? Page Distributions??? Labor Costs??? Employee Benets Cost???

    Value of Floor Space??? Electricity and HVAC Consumption??? Damaged Pieces & Replacement Costs??? Service & Maintenance Costs??? Cost of Spare Parts??? Impact of Down Time??? Staff Productivity??? Supervision??? Management and Overhead Costs???

    Total Cost of Ownership


    Wikipedia: Total Cost of Ownership (TCO) is a nancial estimate whose
    purpose is to help consumers and enterprise managers determine direct and indirect costs of a product or system.

    $1,300/Month

    $22,000!!!

    Vendor K

    $3,100,000

    Vendor P

    $2,600,000

    Conventional Logic:
    DecisionBuy from Vendor P and save $500,000!!!

    6 Months Later

    Vendor K Systems TCO per Month


    Depreciation expense! ! Labor (3 shifts) !! Supervision! ! ! ! ! ! ! ! ! ! ! $29,524 $123,750 $12,375 ! $51,666 $45,000 $4,224

    Service/Maintenance contract! ! Production oor space! ! ! !

    $295,763

    Power (electricity) operating consumption!! HVAC consumption!! ! ! ! $4,224

    System-related mail re-prints and re-processing!

    $25,000

    (All others postage, missed SLAs, management, $0 liability insurance, and other

    Vendor P Systems TCO per Month


    Depreciation expense! Labor (3 shifts) !! Supervision!!
    ! ! ! ! ! ! ! ! ! ! $27,857 $154,688 $15,468 ! $43,333 $56,250 $5,280

    Service/Maintenance contract! ! Production oor space! ! HVAC consumption!!


    ! ! !

    $345,656

    Power (electricity) operating consumption!!


    ! ! $5,280

    System-related mail re-prints and re-processing!

    $37,500

    (All others postage, missed SLAs, management, $0 liability insurance, and other ! ! ! ! ! ! ! !

    Conventional Logic: Buy from Vendor P and save $500K

    1 Year

    $688,704

    5 Years $3,893,460 7 Years $6,080,760 10 Years $9,586,680

    Vendor P

    Conventional Logic:Buy from Vendor P and save $500K

    Vendor K
    Comprehensive (TCO) Analysis:
    Buy from Vendor K and save: 1 Year $688,704

    5 Years $3,893,460 7 Years $6,080,760 10 Years $9,586,680

    CMON MAN!!....

    How can that be possible???

    Asset Price vs FTE


    Monthly Cost of a Single FTE (Operator) $3,437

    ! ! ! ! ! !

    Equivalent Monthly Financial Impact of a Capital Asset Acquisition


    1 Shift 2 Shifts 3 Shifts

    Asset with 5-Year Life Expectancy ! $275K Asset with 7-Year Life Expectancy ! $361K

    $550K $722K

    $825K $1.08M

    Asset with 10-Year Life Expectancy ! $485K

    $971K

    $1.46M

    Total Cost of Ownership - Side-By-Side VENDOR Comparison


    2,000,000 Kern Pitney Bowes

    1,500,000

    Monthly Cost

    1,000,000

    500,000

    0 Scenario 1: 5 Million Pieces per Month Scenario 2: 10 Million Pieces per Month Scenario 3: 20 Million Pieces per Month Scenario 4: 30 Million Pieces per Month Scenario 5: 40 Million Pieces per Month Scenario 6: 50 Million Pieces per Month

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