Total value of ownership (TVO) is making its mark in the justification of automated systems, according to a new report from the Integrated Systems and Controls (ISC) Industry Group of the Material Handling Industry of America (MHIA).
"A New Look at Automated Material Handling's Return on Investment," available for download at www.ControlDesign.com/mhia, indicates that by focusing on technology's value, companies realize how a capital investment will reduce direct labor and enable process, technology and service innovations to the benefit of their customers.
John Sarinick, vice president at Branchburg, N.J.-based material-handling-system builder Beumer (www.beumer.com) and chairman of the ISC Council of MHIA (www.mhia.org), explains that TVO is more than total cost of ownership (TCO). It supplements TCO and creates a more holistic approach to the return-on-investment (ROI) formula for machine builders.
An investment in automation can protect many financial assets that are critical to a range of strategies. That's the value of automation, according to the report. Businesses are building large regional distribution centers in urban and exurban areas to take advantage of lower costs for land and construction and to capture lucrative tax incentives, explained Sarinick. "Labor rates in such areas are generally lower," said Sarinick. "But high turnover rates and the resulting training and administrative burdens have, in the past, nullified the initial investment benefit. Automation plays a pivotal strategic role in helping users secure operations today, while protecting and leveraging financial assets for the greatest possible business outcomes over time."
A TVO-based ROI analysis should consider a variety of questions, said Sarinick.
- How will a capital investment help capture new sales opportunities in an increasingly time-sensitive segment by reducing time-to-market?
- How will a capital investment help improve service levels to an increasingly price-sensitive but critical market segment so we can retain and acquire more customers?
- Will capital investment that reduces carbon emissions throughout the supply chain lower the cost of regulatory compliance, and will it grow our business among environmentally conscious clients?
- Will a capital investment protect other investments that are foundational to our business model?
"Well-designed material handling systems not only help their owners achieve projected ROI, but companies that automate usually will be the ones experiencing the healthiest growth," said Shana Relle, marketing director at Daifuku America (www.daifukuamerica.com) in Salt Lake City and vice chair of the ISC Council.