The TCO equation

23 August, 2017

Within the industrial sphere, total cost of ownership (TCO) is a term that refers to calculating as accurately as possible the cost of running and maintaining a piece of plant & equipment over its operational lifetime. Disciplines surrounding reducing TCO-related costs are often not realised nearly as effectively as they could be, resulting in equipment suppliers, their customers and partners leaving money on the table and not fulfilling all the opportunities that are there in front of them.

In the case of industrial lubricants, most people are aware this is an area that touches almost every part of an industrial business in terms of operations. They are a universal part of machines and applications and yet there remains a sizeable knowledge gap surrounding industrial lubricants among end users and OEMs, resulting in a potential money drain. This is why companies such as Shell are addressing this lack of understanding head on by putting significant effort into technical services, service tools and smart technologies. We believe this will make a major difference in helping customers achieve many performance and cost benefits that are there for the taking. Consequently, this drive for value is actually driving technology and innovation and introduction new technologies, pieces of hardware, liquids and platforms.

Significant loss of business value

When companies buy a piece of equipment such as a mining dump truck or excavator, they spend some capital to acquire it. Then, through the lifetime of that machine companies are spending money on fuel and consumables etc. to make sure they can run it. Also, of course, a really significant element of value regarding the equipment is its productivity. Therefore, anything that goes wrong with that machine can lead to significant loss of business value; less production of energy, parts and components. This can sometimes be the overwhelming element of the total cost of ownership equation.

So, where does lubricants come into this? Understanding TCO well enables companies to make decisions, and if they don't understand TCO – and things such as the contribution of lubricants – companies are likely to make some bad decisions that can have some significant business and operational consequences.

In terms of investment costs, when it comes sourcing lubricants and greases companies have to spend some money to acquire the products, and ideally the right products for the specific tasks at hand. There are then many other associated costs associated with maintenance, shipping, handling, training, analysis, monitoring etc., and companies have to invest a greater sum to ensure they can manage their fluids properly within their applications.

However, this should really be seen as a wise investment, because if this is done well – or indeed badly – either way, this will have a significant impact on other associated costs; whether in terms of any necessary additional maintenance costs, or money needed for purchasing and shipping parts and components when equipment breaks down. Also, and perhaps most overwhelmingly, if the business cannot operate machinery because of equipment issues related to, say, lubrication, the cost of a power plant, mine or steel mill shutting down operation is likely to be many orders of magnitude greater than the cost of the most expensive lubricant it could source.

Performance monitoring

In order to optimise the contribution lubricants can make to the efficient and reliable running of your machines, two main factors should be borne in mind. First, you must select and source the right product; it may not be the cheapest or the most expensive, but the one that is most suited to your equipment in order that you can fulfil the cycle and performance that you require. However, critical as correct sourcing is, this in itself is definitely not enough. So, the second point to make is that the management of lubrication – how you take care of the machine, how you monitor the performance of the fluid, how you look after it and store it and how you undertake analysis – is every bit as important as it is selecting the right product.

Over the past few years, Shell has increased its focus on the business-to-business space in order to enable customers to extract as much value as they can from our services and offerings. The result has been a significant increase in customers that call on us to provide added value around TCO. However, there remain many companies who are yet to really grasp the importance of TCO best practice, as a recent Shell poll looking at customer perceptions showed (see the research findings panel).

Regardless of what industrial sector you operate within – whether it be power, mining, construction, agriculture, fleet manufacturing or a host of others – the importance of sourcing and maintaining the correct type of lubricants for your plant and equipment cannot be overemphasised in order to keep your machinery in tip-top condition, operational and profitable over its operational life.

Research findings

A study, commissioned by Shell Lubricants and conducted by research firm Edelman Intelligence, polled 493 decision-makers in the manufacturing industry in eight countries (Brazil, Canada, China, Germany, India, Russia, the UK and the US) from November to December 2015. Some of the key findings were as follows:

 The impact of lubrication is underrated

• 59% of companies believe they can reduce costs by >5% through lubricant selection and/or management. However, only 1 in 4 think savings could exceed 10%.

[subhead] The benefits of higher quality lubricants are overlooked

• 61% do not expect a higher quality lubricant to help reduce unplanned downtime.

• Only 46% of companies believe product performance should be an important consideration when purchasing lubricants.

• 43% do not believe choosing higher quality lubricants can help improve productivity.

Lack of training and lack of process are obstacles to effective lubrication

• 63% of businesses think they do not conduct staff training on lubricants and greases as regularly as they should, and only 42% have all the correct lubrication management procedures in place.