Today’s blog post is adapted from several original articles written by Dr Marc Dussault, an award winning author, columnist and now popular  blogger as the World’s #1 Exponential Growth Strategist. This blog post deals with rapid equipment obsolescence and the impact on Life Cycle Costing (LCC). This is important when you consider the possibility of leveraging Print Fleet Management within your organisation.

Rapid obsolescence and the impact on Life Cycle Costing

The industry is currently in the midst of a technological revolution where the equipment used and services requested are changing at a furious pace. The rate of change has been so rapid that some equipment has been made obsolete before even being launched, other equipment has been launched only to be obsoleted in 6 months. Capital investments, traditionally made over long term horizons, of 5,10, and 20 years must now be made over 1,2 and 4 years.

Firms historically expect a new piece of equipment to remain a profitable investment for 15 to 20 years yet the obsolescence cycle for new technology has now slipped under three years. Very little reprographic or electronic copying equipment economic life will exceed five years. No capital investment should be considered with over a three year payback. Consequently, a higher profit percent than prevailed in the eighties will be needed to offset a reduced life cycle.[i]

Life Cycle Costing (LCC) [ii], is the total cost of ownership for a piece of equipment. Frequently, the initial cost is very small in comparison with operating and support costs. It is estimated that 80 percent of the cost of owning and operating a piece of equipment occurs after the item is purchased.

Issues related to Life Cycle Costing:

• Reliability- The probability that a system or product gives satisfactory performance for a specified period of time when used under stated conditions. In the case of new technologically innovative products, it is critical to specifically define performance as well as conditions required to obtain that performance. Products are usually “Beta tested” prior to being launched and the results of these tests can usually be obtained from the manufacturer and/or firm involved in the trials.
• Maintainability- Refers to those features of a product that contribute to its ease and cost of repair. With advances in technology, the ease and cost of repair may shift to new components. It is the buyer’s onus to ask such questions. Many specialized trade publications publish pre-release technical evaluations that could prove to be very useful in this regard.
• Availability- The probability that the equipment will be in operating condition at any point in time. “Leading edge” technology is not for the risk averse. Such technological leadership requires that risk be carefully evaluated and considered within the firm’s strategic business plan.
• Commonality- Depending on the size of operation and number of similar types of equipment, commonality can save a lot of operating and support dollars. Often, a service contract on all of the company’s equipment can be arranged with the manufacturer at a fraction of the total of all the service  contracts on all the company’s equipment- even if they are different. Commonality of parts and technology are also important considerations. With digital systems, there is a commonality in the underlying computerization processes. An Information Systems (IS) support person may in some cases be well worth the investment in managing and optimizing the company’s computer systems and processes. This is especially true in “Open System” environments where all the systems “talk to each other”.
• Upgradeability- This feature is particularly important in a highly volatile market such as digital technology. Although somewhat limited, such future transitional possibilities are critical to the feasibility of many high-technology based capital investments. Upgradeability has shifted in recent years from costly physical (hardware) upgrades to much less costly software or program updates.
• Compatibility- If the equipment in question is to work as a component of a larger production system, interfacing issues and associated costs are of critical importance. It should be apparent that reprographic companies are no longer facing simple independent product purchasing decisions, but rather are looking at their company’s overall reprographics strategy. Today, companies don’t buy machines, they buy systems, and they need to know that they can grow with these systems. [iii]
• Capacity- The equipment’s capacity specifications will enable you to define labor required for given production volumes. Analysis of multiple variations will also be possible, i.e. would it be more economical to have two smaller machines or one larger one?
• Operability- Easy operation lowers labor and training costs. In digital reprographic systems the importance of this point cannot be overstated.
• Essentiality- Identify those sub-assemblies or options essential to meet your basic needs and budgetary constaints. Some experienced salespeople use techno-lingo or double-speak to confuse the buyer or hide product weaknesses. Complex principles need to be simplified and clearly understood by the buyer to ensure that they make “common sense”. Many options are made available on digital products to assist in the sales process to the manufacturer’s very diverse clientele. Identifying specific needs are critical to not overloading the purchase with options that will not serve a useful and cost-justifiable purpose in the buyer’s particular applications.

The following areas should be carefully reviewed for cost impact:

1. Consider the cost of acquisition versus the cost of operation and general support. With digital equipment there is an additional type of support contract to consider above and beyond the traditional hardware maintenance contract- a software contract. Software contracts generally include upgrades and technical telephone support.
2. Compare the costs of competing equipment but compare both the front end costs and the costs for the life of the system. Due to the variety of solutions available in the digital area, this comparative analysis is a most  challenging endeavour.
3. Compare the differential costs of the current system versus the cost of the proposed new system; does the new system really offer a savings over the existing equipment?
4. Get to know the equipment industry, as the rate of technological innovation increases, the risk of product obsolescence increases.
5. Cost of disposal. Will the equipment have a residual value at the end of its useful life? Unlike traditional reprographic equipment, digital equipment retains practically no residual value.

Note: When evaluating the costs of a new technology, do not take a vendor’s claim as gospel, get a second opinion from either a trade association, consultant or client using the same technology in essentially the same conditions. Be wary of referrals from vendors, they won’t refer you to disgruntled clients, try to find your own.

Preparing your firm for NEW technology

The implementation of new technology requires that;

1. A true need be diagnosed (and justified)
2. An appropriate solution is available to meet this need (often needs are only partially met as a result feasibility suffers or is altogether unachievable)
3. Top management support the chosen solution
4. That the organization be ready to implement the new technology effectively. For example, who will be responsible for it and how will it affect workflow?
5. Resistance to change should not be discounted, but rather seriously considered. If resistance is high, preparatory measures should preceed its implementation.
6. Assign a change champion who will be responsible for the technology’s successful implementation.

Note: Change in technology will also mean an increase in the importance of training and in some cases, retraining.

[i] Bob Neely, “The reprographic industry of the 1990′s”, Repro Report, September 1990, pg. 10-12

[ii] Frank L. Hicks, “The real cost of graphic equipment”, Plan and Print, December, 1980, pg. 14-18, 39

[iii] Gene Oddo, “Facing the Transition Dilemna”, from a manuscript of a speech given at the International Reprographic Association’s Annual Convention in 1992.