Utilizing Performance Value as a Deciding Factor for Capital Purchases

by Bruce Hayward

Scales weighing time and money

When making capital investments, there are numerous factors that need to be evaluated. Most of the key criteria relates to features that are a must have, which help sort out the finalists. Sometimes the importance of these items can be subjective (controller brand, serviceability, accuracy, ease of use, etc). Price usually stands out on its own, and it can be a nebulous number if you do not have a benchmark to reference. Performance Value can help quantify the purchasing power relative to your ultimate goal, production output.

Performance Value calculation

The table below provides good examples to clarify Performance Value on thermoformers.

Thermoformers Price ($000) Cycles Per Minute Cost Per Cycle
A - Commodore SX-28 $295k 125 $2,360
B - Competitors TF $425k 175 $2,428
C - Commodore SX-28S $341k 175 $1,948

The performance value measurement in this example is cost per cycle.

Example A

Thermoformer A is less expensive than thermoformer  B but output is lower. However, the cost per cycle is almost the same for both. Therefore, other key criteria come into consideration in the evaluation.

  • If low capital spend is an important factor, thermoformer A may be the best solution. This can also help when buying multiple machines. You can buy three of thermoformer A for close to the same price for two of thermoformer B. This may play into other key criteria related to production flexibility.
  • If product B has more "must have" features perhaps the additional cost is justified.

Example B

Thermoformer B is more expensive than  thermoformer C but output is the same. Cost per cycle makes a dramatic point with thermoformer B having a 25% higher cost per cycle. Unless there is a compelling argument related to other criteria, the performance value of thermoformer C helps make the decision very clear.

This simple calculation can be easily used for different applications such as:

  • Extruders - Capital cost per kilo of output
  • CNC Mills – Capital cost per linear inches of cutting speed or traverse speed
  • Cars (my favorite) – Cost per horsepower

Making capital purchasing decisions is not always black and white. Sometimes it can be an emotional and cultural challenge to make the right decision. Adding a simple yet quantifiable calculation such as Performance Value may help clarify the decision process.