Inspection Equipment Can Pay for Itself

The greatest savings, though it may be hardest to quantify, comes from brand protection. A recall can seriously damage your company’s reputation and create a host of unexpected costs, including attorney expenses, fines, and the value of recalled products. It’s also important to remember that a contamination issue is significantly less expensive the earlier it is detected in the production process. In other words, it’s more expensive to resolve a contamination issue that is first detected in a warehouse before shipment than a problem that is detected at the raw ingredient stage. Careful screening of raw materials can save a lot of money down the road, and you may want to include this point in your proposal.

There are a lot of variables to incorporate into a proposal, so the easiest way to show how to calculate inspection system payback is to walk through an example. Let’s use an X-ray system as the potential purchase and begin with the expenditures section. These expenses are fairly straightforward; you may even know some costs offhand, while others will take a little research. Equipment, installation, and training costs should be readily available; you may rely on staff or equipment vendors to determine expenditures such as operating costs, disposal fees, and unscheduled downtime.

Calculate Savings

When it comes to calculating savings, you have to examine your current costs. For each of the categories—scrap, rework, inspection, and product returns—you can calculate estimated savings by figuring out how often these events occur and assigning a cost to each one. Let’s say you are calculating scrap costs and you know that, on average, your plant’s product is scrapped five times a year due to a contamination issue found in a quality assurance sampling process. You need to determine the average amount of product lost and the number of production hours devoted to looking for the cause of the contaminant, for example, a broken piece of equipment or a blade.

Perhaps you estimate one hour of lost production at a cost of $1,000, with $2,000 of scrapped materials for a yearly total of $15,000. If your company must pay for scrap disposal, calculate that cost into this figure. When product is reworked, you only need to compute overtime and repackaging costs; for inspection, you need to know rental and labor costs associated with hiring a third party service to inspect a contaminated product, typically 10-15% of its retail price.

With product returns, there are more possible factors to consider, including attorney fees, inspectors, and recalled product costs. It’s important to know the costs of each part of an event and average the frequency of its current occurrence. Tax incentives vary from state to state, but if your state offers a tax credit, it is usually deducted directly from your tax bill. Be sure to look into this.

In the example, you’ll see expenditures laid out in red and savings in green. The annual difference between the two creates the cumulative cash flow. In this analysis, cumulative cash flow returns to a positive balance about one and a half years after the time of installation and commissioning, an ideal TCO payback time. Each variable can have a direct effect on how much time it takes your company to earn back TCO. Taking the time to gather accurate information ensures a reliable picture of payback time.

Intangible Benefits

While hard numbers are invaluable, the case for new inspection equipment does not end with the payback model. There are a number of intangible factors to consider when building an argument for new inspection equipment. For example, because the largest branded food producers or retailers are always looking to do business with companies that have world-class inspection practices, these practices can be a differentiator. Likewise, updated inspection equipment comes with state-of-the-art traceability technology, vital for any company having to produce evidence and records to disprove a customer’s contamination claim.