NEWS RELEASE JUNE 2016
Evaluating LTCO Improves the Selection Process for High Performance Flow Control and Treatment Equipment
High performance (HP) flow control and treatment equipment tends to be purchased and sold using the same process as general purpose equipment. Price and delivery are prioritized. Evaluation of the lowest total cost of ownership (LTCO) is not elevated to the highest priority. This failure permeates the industry even to the point that bonuses are paid on performance in the past year rather than the past 10 years. The company that buys the lowest priced HP products does better this year but over time it will be a costly choice. The company that sells the lowest priced HP product can book profits in the current year but subsequent expenses and loss of reputation will affect future profits.
This condition needs to be corrected. The first step is to identify the high performance products that need to be evaluated separately. There are three main criteria:
- Severe service
- Critical service
- Unique Service
Severe service: Corrosion, pressure, temperature, process operating fluctuations are all conditions that qualify an application as severe service.
Critical service: Safety, product purity, continuous operation, and product toxicity are criteria of critical service.
Unique Service: The distinction is often made between an engineered product versus an off the shelf or standard product. In any case, the decision making for unique service products needs to be made with prioritization of the LTCO.
McIlvaine Company is facilitating this identification of high performance needs by revising its market reports on air and water pollution control systems, filters, pumps, valves and instruments to segment the high performance and general purpose opportunities. For each industry high performance needs are further segmented by use e.g. air or water intakes, cooling, stack gas or wastewater treatment, and process. Process, in turn, is segmented by function e.g. evaporation, reaction, mixing, size separation, etc. This segmentation has been completed for pumps and valves. Now the 50,000 forecasts by product, industry, country and year can be further segmented by high performance or general purpose.
The second step is to make the LTCO evaluation process less costly and more accurate. It is easy to select the lowest price or most widely used product. There is no easy way to evaluate the LTCO for each option. Purchasers often hire consultants to help them evaluate the LTCO. The problem is that with the world’s information doubling every few years, it becomes increasingly difficult to take advantage of the knowledge at reasonable cost.
One approach taken by Arcelor Mittal has been to emphasize global purchasing. Most of its 200 mines and steel plants have the same high performance needs. Recently, it purchased dust collection systems with one purchase order for plants in Europe and South America. The LTCO evaluation cost per system was greatly reduced.
McIlvaine is helping purchasers determine the LTCO with services such as:
44I Power Plant Air Quality Decisions (Power Plant Decisions Orchard)
For more information on the flow control and treatment market reports click on: http://home.mcilvainecompany.com/index.php/markets