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March 2008

Lifecycle Costing Made Easy
By: Janice Cha

Here's how to use an online NAFEM tool to figure your true cost of equipment ownership.

When you're trying to decide between similar pieces of kitchen equipment, simply choosing the least expensive item to reduce capital expense could prove pricey in the long run—especially in this age of sky-rocketing energy and water rates. And yet a "cradle to grave" comparison seems complex and impractical.

Unless you use a handy spreadsheet tool, that is.

Specifically, we're referring to the Life-Cycle Costing Analysis tool, developed by North American Association of Food Equipment Manufacturers' Technical Liaison Committee.

Two members of the TLC team—Dipak Negandhi, senior engineer at Unified Brands, Jackson, Miss., and David Zabrowski, senior engineer at the PG&E Food Service Technology Center, San Ramon, Calif.—presented an overview of the tool to an early-morning, standing-room-only audience during The NAFEM Show in October.

Negandhi began with an overview of the objectives of the tool. "LCC analysis helps you choose the most cost-effective approach from a series of alternatives," he said. "It also minimizes the long-term cost of ownership—and it helps you justify equipment based on a total dollar figure rather than just the purchase price."

Using the LCC tool, "you can compare competitive models, different models from the same maker or different products for the same application," Negandhi added. "It also helps with replacement decisions."

A Five-Step Program
Zabrowski continued the presentation by demonstrating how to use the tool. Configured as an Excel spreadsheet, the LLC tool consists of five main sections: capitol cost, maintenance, labor, operating and disposal.

The capital cost starts with the purchase price—and expands from there. "It's easy to pick out the cheapest item, but you should also consider shipping costs, assembly, the extra load on your electric panel, and whether there's an extended warranty or not," Zabrowski said.

As he spoke, Zabrowski entered sample numbers into the fields on the spreadsheet: cost, tax, delivery, rebates, warranty, installation, set-up and staff training. "You'll start out with estimates, and then hone them down with experience and judgment," Zabrowski said.

Estimating a machine's lifespan is a particular challenge. "How long a unit will last depends on where and how it's used, and on maintenance and water quality," Zabrowski said. "One trick, however, is to choose the amount of time you'll use to depreciate the machine."

Zabrowski offered another tip as well: "If you don't know what a particular cost would be, leave the field a zero. It could be that it's not an issue when comparing one model to another."

Digging Into Maintenance Costs...
Zabrowski then moved on to finding data for the maintenance section. "Service agents, preventative maintenance contractors, supply companies and operations managers are all good sources," he said.

"One casual dining chain we worked with put tracking numbers on each piece of equipment so they knew exactly how much they'd spent on all aspects of the equipment after a two-year time span," he added.

Labor costs are another tricky aspect of using the LCC tool. "You don't want to include all of your labor costs—that gets too cumbersome," Zabrowski cautioned. "When it comes to machines that feature labor savings, consider that aspect only. Take a self-cleaning oven, for example, where you're comparing turning on the cleaning cycle overnight versus paying someone to scrub it out."

Another comparison that requires labor costs is when you're looking at two different platforms, such as a broiler and a griddle, in which one might require more hands-on time than the other.

...And The Day-To-Day Costs...
A major portion of the LCC tool is found in the operating costs section. Here's where you enter figures for energy consumption (based on performance testing—ASTM is a good source for these numbers, Zabrowski says), utilities (gas, electric and water/sewer bills) and the like. You can also look at the Energy Star Web site's calculators for fryers, steamers, warewashers and more.

Equipment that relies on water needs extra attention when figuring costs. "With dishwashers, you're paying for water twice—once coming in and once going out," Zabrowski said. "In places such as San Francisco, the sewer cost can be higher than water. Call your local utility rep to get an idea of how much you're paying."

Finally, Zabrowski came to the disposal section. "We think that disposal will be an issue in the future, but currently we don't know of any companies that want to salvage the stainless steel from used equipment," Zabrowski said. "However, you can figure on a small resale value from the used equipment market."

On the other hand, you may also have to consider hazardous materials disposal charges, or the impact of insulation, "which makes it harder for the scrap guys to salvage the steel," Zabrowski noted.

Zabrowski summed up the LCC tool by stressing this point: "The important thing about this analysis is not so much that the figures are 100% accurate, but that you're using consistent figures for analyzing all models."

Building A Costing Tool
The Life-Cycle Costing tool was created by NAFEM' s Technical Liaison Committee. It started with input from 32 foodservice industry pros who determined what cost factors to include. By the time the LCC tool was released at the end of 2006, the process had taken 75 hours of meetings, about 2,000 professional hours in all. The tool has been published by ASTM as standard F2687-07, and is expected to achieve its ASTM/ANSI F2687 rating in early '08.
The LCC Tool can be accessed at no charge from the NAFEM Web site. You can also find sample spreadsheets at the PG&E Food Service Technology Center site.

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