Justifying spending time and money on conveyor improvements isn't easy. It is a tough but important job as you are justifying more than just the improvement/addition itself. By improving conveyors, you are improving safety, cleanliness, and productivity as well. Talk about importance!
Let's Test It Out - ROI!
I will be using data from a coal mine for this Return On Investment exercise. But first, to get up to speed and learn more, reference part 1 & part 2 of this 3-part blog post:
COAL MINE DATA
- Culture: Chain of Command/Production
- Cost of Money: 4%
- Gross Profit: $5/t
- Maintenance: In House
- Managed Conveyor Service: $o
- Upgrade Contract: $0
- Cost of Labor: $75/h
- # of Employees: 30
- Lost Time Accidents/Year: 14
- Plugged Chutes: 5 h/d
- Production: 500 tph
Cost Analysis of A Plugged Chute
Known factors:
- 5 hours per day
- $75 / hour labor cost.
- Let's use 1 incident per week (5 hours/week)
Assumptions:
- Buddy system (two workers)
- Production schedule of 5 days per week
- Cleaning cost per year = 5 h/week x 50 weeks/year = 250 hours unscheduled downtime
- Two workers x 250 hours x $75/hour = $37,500
If you reduce cleanup hours, the headcount can be reassigned or reduced to positively affect your bottom line.
A Conveyor Safety Lost Time Accident can range from $8,000 to $680,000. Those are not prices I would want to take a chance on! I often hear of customers trying to estimate how much an unfortunate accident/event might set them back. OSHA has a Safety Calculator that might be beneficial for you.
Conclusion/Takeaways
- Remember, cleaner, safer. and more productive are all linked!
- The company culture can affect how you present your proposal so be sure to avoid DATA-FREE CONVERSATIONS.
- Simple ROI (savings/cost) doesn't measure cash flow.
- Net Present Value (NPV) is the method corporate uses to evaluate projects
- NPV is another way of justifying purchases. It is the difference between the present value of cash inflow and the present value of cash outflow over a period of time. It compares the savings over time to investments spent today.
The benefit or ROI of upgrades can be easy to grasp when you take a step back to look at the big picture of the current state (hours of manual cleanup) and the associated costs (lost production, increased cost of operation, decreased safety, reduced efficiency, less profit). ROI in many cases can be quite easy to determine and the payback can often be surprisingly fast.
I am happy to help anyone with this process or answer any questions. Leave a comment and I will get back to you with an explanation!
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