Tag: money

Price, Deal, or Cost

Written on by frain-sales

With the holiday season wrapping up, shoppers are still hitting stores – aiming to get the best deal available. Likewise, finding the best deal in packaging and processing equipment can be a game played in overtime, when you don’t have a second to spare, especially when considering all expenses incurred in finding the right machine for your project.

Equipment buyers don’t always consider the extra expenses that go into purchasing machinery. Getting individual machines or complete packaging lines late, without replacement parts / support staff, or getting the wrong machine altogether can affect:

  • Market share
  • Productivity
  • Downtime Costs
  • Net Revenue

Equipment buyers must clearly understand and equate value, not price, to the operation. Getting the proper machine, quickly, and fully supported will mean more to the bottom line than “saving” on the initial price of the unsupported, incorrect, or machine that arrives late.  Get an inside viewpoint on price from Katie Frain in our latest video:  The Question of Price

Time versus Money: This is what they said

Written on by frain-sales

As part of a 3rd Quarter Survey, Frain asked customers and prospects what mattered most to them when considering an equipment purchase.  Not surprising to us, the two groups differed in their responses.

Frain customers chose time as the #1 influencer in choosing equipment based on 64% response rate.  Quite differently, the larger population of potential Frain customers or prospects choose price as the #1 motivator in choosing equipment based on a 72% response rate.

The tug of war in the packaging and processing equipment space hinges between the expense of time and the initial price someone is willing to pay.

Understanding the importance of time and acknowledging the role Frain plays in closely following project lead time is an expense that Frain helps offset.  As they say: time is money, and our customers appreciate this reality. In the end, the price many pay is downtime, market share, decreased productivity, loss of revenue, and more.

With more customers acknowledging the benefit of time, turnkey providers like Frain can offer a unique service(s) that is customizable at a “mass produced” speed. Customer insight gives us an opportunity to recreate, adjust, or improve existing processes, and implement new ones as required, and it lets us know that time wins every time.

Read the complete Third Quarter Customer Report and Third Quarter Prospect Report for more insights.

Related:

Consumer demand pushes for shorter time frames and faster response.  The Frain Element responds to this demand by enabling it’s customers with the flexibility to customized equipment that accommodates a growing and ever-changing market. Moreover, customers recognize that Frain does a great job at identifying customer needs, responding to their queries, and meeting customer’s deadlines.

Two Cents Worth

Written on by Rich Frain

Henry Ford invented the Toyota Production System 100 years ago when Toyoda Automatic Loom Works was still a dream. His book, My Life and Work (1923) describes all the major components of what we today call TPS. It is a shame we lost our way and it took the Japanese to show us how again.

One reason for Ford’s success was his insistence on precise measurement. He was so fanatical about tolerances, he bought CE Johansson company so he could get access to Carl Johansson and his high precision gauging system. You can read Henry Ford’s thinking on measurement in “A Millionth of an Inch” at www.changeover.com/fordmetrology.html.

Ford was also fanatic about financial measurement. He required all costs to be calculated to 1/100th of a cent. If the cost of a washer was expressed as 2 cents, it would be difficult to fire up any enthusiasm for cost reduction. This lack of enthusiasm would be partly due to the lack of visible cost reduction. The 2 cent washer on which 15% is saved, is still 2 cents. The 2.00 cent washer now has a visible savings of 0.30 cents. A third of a cent may not sound like much until you multiply it by 25 million washers annually. Now you start talking about real money ($75,000/year). That gets people’s attention especially when you repeat that $75,000 over and over again with every cost in the company.

This concept of precise expression of costs seems a pretty simple and powerful way to increase cost awareness and resulting attention to cost reduction. How many companies practice it today? Do you?

You need the macro view of your company, the big picture, to operate. Focusing only on the details will lead to strategic failure. But, focusing only on the big picture will also lead to failure. You need to zoom in on the details as well.

Ben Franklin may have said, “Watch the pennies and the dollars will take care of themselves.”

Henry Ford lived it.

Timing is Money

Written on by Rich Frain

All spending must be expected to bring in more than goes out or there is no reason for doing it. Last month I talked about the simple payback method of cost-benefit analysis. Simplicity is both the strength and the weakness of payback. Payback assumes that cash flows, in and out, will be consistent. They seldom are. A project may require a big cash outlay at the beginning, to buy a line for example, followed by a smaller outflow the first years, due to introduction costs and low volume. Then, in subsequent years, positive cash flow is expected to increase as sales take off. Payback does not handle this situation well.

Another issue is the time value of money. A dollar today is worth more than a dollar a year from now. Terrific revenues 10 years from now may not offset negative or small revenue flows in the early years.

More sophisticated analysis must be applied to fine tune the project’s profitability. Two common methods are Net Present Value (NPV) and Internal Rate of Return (IRR). They are essentially the same except that in NPV the interest rate, more accurately the cost of capital, is a given and the analysis yields the net present value of the investment. IRR takes the cash in and outflows and solves for an interest rate. The main advantage of NPV over IRR used to be that it was easier to calculate. Now, spreadsheets like MS-Excel, make both simple. IRR has the advantage of giving a percentage rate of return that is easily compared to a company hurdle or to other potential investments. The choice is usually a matter of company policy.

Whichever method is used, good results depend on good data. All inflows and outflows must be identified as accurately as possible. This is usually the hardest part. Once that is done, it is basically just plug and play.

Time is money and so is timing. It is almost as important to financial decisions to know when cash will flow as it is to know how much.

My book, Secrets of Buying Packaging Machinery with John Henry is available on Amazon has much more information on project financial analysis. Call us 630-629-9900 and we’ll help you figure out your best options.