Quick-win savings: Potential pitfalls
23 July 2013
The desire of compressed air users to reduce running costs has never been greater. As a result, there is a risk that some companies may overlook the benefits of using genuine OEM-supplied parts and maintenance services, according to Sean Fairest, business line manager for Atlas Copco’s Compressor Technique Service. Here, he explores the issues and potential pitfalls of turning to alternative service providers for perceived 'quick-win' savings.
First of all, we have to try to understand why alternative service providers can appear attractive to end users. In most cases, there are two simple drivers – lower cost and local presence. On the face of it, of course an alternative service provider can appear less expensive than an OEM service organisation. However, from an OEM’s point of view their approach is about total cost of ownership (TCO), as opposed to a single invoice related to a specific issue when an engineer visits site. It’s important to show customers the benefits of this approach, and what this type of decision can mean for their organisation in the medium to long term. Sometimes, a short term gain can bring long term pain.
The main components of service are labour and spare parts. If we focus on labour costs, it’s natural that the cost of managing a global service organisation, along with investment in R&D, training and state-of-the-art systems, carries overheads that simply don’t exist in a small service company that has no links to a manufacturer. In the short term, these reduced costs can be passed by an independent provider to a customer as up front savings, which appear attractive. However, it should be noted that using such providers may deny the customer access to the medium to long term benefits of R&D investment by manufacturers, which can result in lost opportunities for improvement that far outweigh the short term saving.
To expand upon this, there have been many innovative developments in recent years, all designed to help customers reduce their TCO. For instance:
• Savings of up to 35% in energy costs by using integrated VSD motors
• Integrated and retrofit energy recovery systems, designed to recover up to 94% of energy
• Compressor control and management systems, designed to lower energy and maintenance costs.
• Remote and smartphone enabled connectivity solutions
In some cases, users are left unaware of the opportunities to reduce energy and lower maintenance costs as some independent service providers don’t have any relationship with manufacturers, resulting in reduced access to this technology. This can result in a lower headline service bill, but lifecycle costs that are higher than necessary. This can lead to a net increase in the cost of generating compressed air, which often negates the original intention of the end-user to reduce costs.
Turning to the costs of spare parts; there are a number of options designed to offer end-users an alternative to OEM spare parts which are perceived as expensive. Let’s look at oil-free compression elements. End users may be offered opportunities to source alternative oil-free air elements that claim to deliver the same quality air, with similar running costs and reliability. But if we analyse each claim:
- Looking at air quality, we see that, unlike the OEM compression elements, alternative products are not sold with ISO class zero test certificates. If air quality is so important to the production process that an oil-free system was specified originally, is it wise to run these risks? Would any spoilage costs outweigh any short term savings on alternative compression elements?
- Now to running costs. Again, unlike the OEM offer, we do not see any ISO test certification to guarantee the performance of the elements. Even if we had a situation where the air delivery of the alternative elements was only marginally down on the guaranteed standard of an OEM element, has the end user calculated what this would mean in terms of increased costs to generate air over a typical 60,000 hour lifetime? Once again, we see the potential to save in year one but thereafter, we often see increased energy costs that far outweigh the difference in price between the OEM and alternative offer.
- Finally, reliability. OEM compression elements can come with a warranty of up to five years; alternatives seldom do. In some cases, alternative compression elements have been found to be composed of component parts that were sourced from multiple locations and suppliers. Compared with the 100% in-house assembly and test procedures of an OEM, is this the best solution? Furthermore, while the OEM is innovating to push the change out intervals of oil-free elements to 60,000h, we see some alternative providers questioning this and encouraging customers to continue to invest in major works at 40,000hours.
So, to summarise on the cost of service, taking into account all the questions raised here. Does an alternative really create value for a customer, or just offer the chance of a ‘quick win’ at the expense of long term profitability?
I’d also like to consider a second influential factor which is the attraction of alternative service providers due to their local presence. If we consider the availability of spare parts, at face value it may appear that the alternative can offer fast and personal service if they have a local workshop. However, the whole logistic chain is important and often overlooked.
By definition, an independent operator has no links to an OEM so, in some cases, they establish a convoluted supply chain that relies upon several different companies to perform well at the same time. This can work without problem when it comes to routine service that is planned in advance. However, in cases of breakdown or emergency, this supply chain simply cannot act as swiftly as a typical OEM, which can have a next day delivery service for 95% plus of all spare parts.
Let’s take a look at the availability of labour. Independents often claim that a local workshop can offer a faster service than an OEM, but is this really the case? OEM service organisations invest heavily in state-of-the-art systems to plan and co-ordinate routine service and get their engineers and the spare parts needed to the heart of a breakdown as efficiently as possible. With an OEM one national Freephone number provides direct access to a dedicated on-call engineer, with real-time connection to all the OEM’s resources. Furthermore, OEMs are now moving customers to connected services, providing on-line call-out to minimise delay and maximise productivity.
So once again, when we take these points into account, we have to question where value is created for an end user of compressed air. In summary, taking into account the key questions raised against both main drivers behind a decision to choose an independent service provider rather than the OEM, compressed air users need to challenge the quick wins and consider carefully if their decision is creating, or destroying, value in the medium to long term for their company.