We have talked previously in our conveyor belt blog, about the wider benefits of having conveyors installed. Things such as health and safety and modularity are really important. However, with the focus on costs being front and centre during this period of 2022 we wanted to highlight the potential for cost benefits that the installation of a conveyor can provide.
What is a cost-benefit? Cost-benefit can be derived when a form of analysis occurs, that being, the benefits of an interaction, that ultimately becomes expressed in monetary terms.
The inputs into this form of analysis would be:
Costs - What is the cost of the intervention? in this case the cost of conveyors (design/build/install) from a company such as CCL.
Benefits - The net benefits of a project may incorporate cost savings. In this scenario then what is the cost-saving, that the implementation of a conveyor system intervention has had?
Another way of putting the above is that a CBA is a process that is used to estimate the costs and benefits of a situation and to come to a conclusion on the most cost effective solution, or way forward.
So what is the process that you could consider to work out the cost benefits of having conveyors installed? Let's have a look at the checklist:
What are the ultimate goals and objectives you are trying to achieve? Come up with a business case, and an outline for your project that incorporates the things you wish to achieve.
Have we done something similar previously, what are the alternatives? Have you constructed a product or done something in the past within the business? how did that perform in regards to return on investment?
How will you measure the costs and benefits? The main one is going to be the bottom line. The amount of money invested into the project will be measured in pounds. When trying to work out costs some of these will be pretty obvious. They will include labor, material, and inventory costs. Also, be aware of what is known as indirect costs such as rent and utility costs. Utility costs are a big one at the moment to consider, more than ever in fact. Also consider slightly more intangible costs such as any losses you may incur to normal revenue whilst creating the new product or line, and any decrease in potential customer satisfaction that could impact your repeat orders. Opportunity costs can also occur when you don't follow other opportunities that may arise.
Benefits should also be assessed and thought about as such:
Direct benefits - these include an increase in revenue and sales from the new product. How would conveyors contribute towards this, and what impact do they have on the product's creation? are they essential to the product? a good example is a food line which has multiple stages and is connected through conveyors. Does the product get made without conveyors? yes it could be, but it would be slow and potentially inefficient, so you need to consider the benefit in terms of money that such an integral part of the process brings with it. What percentage of every pound made, does that conveyor contribute towards?
Indirect benefits could include an improved interest in your product, or brand from customers, who could go on to purchase other lines or products you are associated with.
It could also give you a competitive edge by being the first to market or an innovator in your area of work.
Put an amount against the costs and benefits, and tally up the total value - Once every cost and benefit has an amount next to it, tally them up. If total benefits outnumber total costs, then there is a case for you to proceed with the project or investment. If the total costs outnumber the total benefit amount, then you may want to reconsider the proposal, although you may still be able to work out some way to reduce costs with some further thought.
Pros of doing a cost-benefit analysis include freeing up your bias because once you have the data set infant of you it can be a liberating and truthful opportunity to look at the situation. Your emotions have to become slightly removed here, particularly if it is a pet project that you are very invested in. Once you see the figures it can free you up to make a decision. It can make a hard decision slightly easier to make and uncover the hidden costs involved with projects. All of which will help you in the long run. To be forewarned is to be forearmed.
Next steps - You need to follow the steps above, to come up with some figures, regarding the costs of the conveyors you are thinking of installing. Then it will be a case of weighing the costs up against the benefits to understand your next potential move.
CCL Conveyors have the experience and expertise to help you make your project plan a reality. As always we hope you have enjoyed the blog and please reach out at any stage to discuss your project further.