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.