At Setpoint Systems we sell automation equipment for manufacturing. It turns out that our products are capital equipment to our customers. Capital equipment represents large investments for most businesses that need to be depreciated over time. Capital sits on a company balance sheet as a long-term investment. Getting capital equipment approved as an investment is usually pretty tough. The finance people really don’t like see hard earned cash being spent on capital that is based on some manufacturing engineer’s idea to improve a process on the production floor.
Lately the importance of cash is greater than ever. With the financial crisis of 2009 and the seemingly constant cases of financial fraud, investors and business owners don’t like to see cash coming out of their businesses. This trend on Wall Street and in the executive suite has made it harder than ever to pry out the cash required to make those capital investments. Consequently, it’s been a tough few years for business that make and sell capital equipment like Setpoint.
So one way we have battled the trend away from capital investment on new manufacturing equipment is to provide a Return on Investment (ROI) tool on our web site. Now that new idea from the manufacturing engineer can make sense financially. This tool allows one to take an investment in capital and apply financial analysis to the numbers to see if they make sense financially.
The ROI tool provides net present value (NPV) and internal rate of return (IRR) on that automation project. To use the tool one needs to know how much an investment in equipment will be including all the costs to ship install and start-up that new automation equipment. Then you must estimate the annual savings in the machine will provide the business. These savings can include increased production, less labor requirements in the process, or less scrap. Once the savings are estimated and the initial costs are identified the last step is to provide a minimum initial rate of return on projects in your business (usually the finance group can help you with this). Armed with this information you are ready to plug the numbers into the ROI model.
The results will tell you thumbs up or down on that new capital project. Armed with a positive ROI result, now that new project is not just a cool idea but also helps the company make profit and more positive cash flow. Try the model out and then when you find yourself a winner. Contact us at Setpoint Systems. We love to help our partners and customers make more money.