How do we calculate the ROI for our machines? Here is a real-world example.
Updated: Oct 13, 2022
We tell you that our customers save big money by tossing their preform shrink bands in favor of an eatSafe automatic shrink banding machine. Here is an example illustrating how great the savings can be.
We recently visited a small food manufacturing plant that employs fewer than 20 people. On any given day, four of those workers are standing at a table placing preform shrink bands onto filled and lidded food containers, stacking them up and pushing them onto a shrink tunnel conveyor. Let’s assume that each of these employees makes the current minimum wage, when fully burdened equals about $20,000 per year. Now multiply that by four people. Labor cost to add preform shrink bands = $80,000 per year at minimum wage.
This is NOT the most enjoyable job to have… but to keep things simple we are not going to guess about the true cost when you factor in the rapid turnover commonly seen in a job like this: cost of training, lost productivity during re-staffing and training, and the cost of having more skilled workers fill in during gaps in coverage. We will also not calculate the cost of two other common situations: when employees miss a container and it ships to the retail store unsealed, or when the preforms stick together and the container gets multiple seals.
Let’s talk about the preforms themselves. The company we visited orders four pallets every month. They use 120,000 preforms per week, which is about a half a million preforms per month, and nearly 6 million preforms per year… and growing! At $10.40/thousand, this is an annual cost of $60,000.
One year of preforms and the labor to apply them costs $140,000. This company will have a return on their investment in less than 1 year. In fact, the labor savings alone will cover the new equipment. Our customer will realize even greater savings because the eatSafe shrink film that is used in the machine will cost less than half of what they are currently paying per year for preforms.
Current annual cost of preforms = $60,000. New cost of eatSafe shrink film: $4.50/thousand, equaling only $26,000 per year, with an annual savings of $34,000, or 43%.
These are direct costs, and don’t include savings that are more difficult to quantify. For example, it is quite a challenge for our customer to find storage space in their facility for four pallets of preforms. With an eatSafe machine and eatSafe shrink film roll stock, this is no longer an issue. One month’s supply of film is smaller than ½ pallet, and film orders can be set up for just-in-time delivery. The eatSafe machine will also allow them to increase their capacity without increasing their labor costs… great for profitability! On the administrative side, there will be no more forecasting meetings to plan out what containers will be used months from now to accommodate a 16-week lead time to receive their preform order. eatSafe can provide the needed shrink film in 1-2 weeks or less. Floor space is in limited supply in most manufacturing facilities, and the eatSafe equipment has a smaller footprint than the current conveyor and shrink tunnel, which will no longer be necessary. Quality improves: eatSafe equipment reliably places a single seal on each container, unlike the errors seen with a manual process.
Executive Summary Payback for the cost of the equipment: about 9 months. Ongoing annual savings: $34,000 per year, plus additional savings on the indirect costs.