Assess The True Costs Of Test

Assess The True Costs Of Test

In financially tough times, company management more than ever must keep expenditures under control. Cuts are made to staffing levels, marketing budgets, research and development, and many other areas. If technology enterprises are to survive, though, they cannot afford to compromise on product and service quality, which means that choosing the right test equipment is important.

There tends to be a simple black and white perspective when it comes to making purchasing decisions about test equipment—if it’s needed for the job at hand, then it simply has to be bought. Should we now question this way of thinking?

Various hidden expenses (Fig. 1) can ensue when sourcing test systems, and companies don’t always fully consider them before committing to purchase. Outlay for servicing, repair, recalibration, downtime cover, storage, transportation to different sites, financing repayments, and disposal, as well as simple depreciation over time, all need to be taken into account.

Though the procurement staff doesn’t normally appreciate it, it’s far from uncommon for these factors to more than double the overall cost (Fig. 2) involved. For example, a capital investment of £10,000 for a piece of test equipment can, over the course of four years, cost the owner in excess of £20,000.

The frequency of its use will dictate whether a piece of kit is a necessary purchase. In many cases, test equipment is rarely used after the initial project it was bought for is completed. Also, with test requirements tending to change at a rapid pace, the likelihood of needing to upgrade is another major issue that can be overlooked.

Given this need to respond to new testing demands and industry standards, compounded by the ongoing uncertainty of the marketplace (where projects could get delayed or even cancelled at very short notice), the arguments against large upfront investment are growing in strength.

Companies no longer have the visibility to be able to forecast how often a piece of equipment will be in use over its operational life span. New developments could mean that it is rapidly outdated, or lack of business could simply deem it surplus to requirements. The merchandise then becomes nothing more than a drain on funds, rather than (as originally intended) a way of generating revenue.

The purchase of equipment also means that money is tied up, rather than being available if there is a sudden need elsewhere in the organisation. By ploughing money into increasing the test inventory, other funding requirements might not be met.

SOURCING IN A TIMELY MANNER

When purchasing equipment, lead times also need to be considered. If an opportunity arises at short notice, then even if the company has the available cash at its disposal, it may have to wait several weeks to receive the tools for the job. This will clearly be frustrating, and it could result in the contract going to a competitor. And if existing kit is being repaired or recalibrated, it can leave a hole in the company’s inventory, leaving it unable to deal with last minute customer requirements.

PREDICTING PRODUCT USE

Before acquiring test equipment, companies need to be able to have an accurate forecast of how long and how often they will be utilising it in the years that follow. Otherwise, a considerable sum of money could be squandered unnecessarily. These difficult times call for new business models that will not expose companies to the threat of overspending.

With anything, there is an inclination to assume that ownership is going to be more cost-effective than simply renting. But when it comes to test equipment, and the nature of the business in which it is used, this is a major misconception. By implementing a strategy based on rental rather than direct capital expenditure, it is possible to have a closer correlation between the cost of keeping equipment and the income that can be derived from its deployment.

This tactic gives companies a greater degree of flexibility so sudden changes in test requirements don’t result in additional unforeseen expenditures at a later stage. Furthermore, a rental approach can free up cash. Funds previously needed for equipment acquisition can be better appropriated, helping to solve more crucial problems.

Rental can also solve the availability issues already outlined, with kit being made available for use much quicker and cover being secured when repairs and recalibration are underway. In effect, it shifts the responsibility of investing in new technology onto a third party, safeguarding the company against the many procurement risks that are now endemic in the market.

Companies of any size, whether they are systems integrators, contract installers, or product manufacturers, potentially will be able to use their cash resources better with this approach. They can thus ensure that equipment is not simply gathering dust on a shelf, but utilised to the fullest.

For a certain percentage of companies, equipment purchases are justified. Yet they aren’t really practical for a larger than appreciated number of companies. Some procurement decisions can be ill informed, with the amount of use that a piece of equipment will get being overestimated, while the total cost of ownership is underestimated.

The motivations for companies to rent rather than buy equipment are not new. However, they are far more pronounced now than ever. The fundamental changes taking place in how businesses are run mean that it will not only become more attractive, but in some cases it will simply become a necessity.

By synchronising utilisation with payment, it is possible to ensure that there is a tangible return on the investment that has been made. It means that companies that are not cash rich can overcome the financial barriers preventing them from having access to the tools that will allow them to grow their business.

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