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During operations and throughout their lifecycle, many companies face the necessity to update or expand facilities and other resources such as infrastructure, equipment, and services. During purchasing and tenders, the decision for technical procurement is often based primarily on price rather than long-term applicability and needs. To demonstrate "economy" and savings, project teams or procurement teams frequently use short-term targets for purchasing new equipment or services.
In reality, companies need to save money and optimize costs throughout the entire lifecycle, not just at the beginning of the project.
Expenses that appear low initially often become significantly higher in the middle or long term. For example, if equipment can be purchased from two suppliers—one for $1 million and the other for $2 million—most project and procurement teams will choose the $1 million equipment to save money if it "somehow" fits the requirements. But does it really save money? What if the $1 million equipment initially leads to a much higher level of scrap and requires numerous adjustments and services throughout its lifecycle? What if it ends up costing an additional $2 million for adjustments and expenses in the first year alone? This means that in the first years, expenses would total $3-4 million instead of $1 million. However, since these expenses are spread over the year, project and procurement teams might claim they saved money without realizing that in reality, money is lost because long-term planning was not considered during tender and procurement.
These companies could save money and avoid additional expenses by ordering more suitable and better-quality equipment at the outset even if it is more expensive. It may cost more initially, but it will cost less over one year.
The mistake many companies make is separating the cost of procurement from the full lifecycle cost. What do they get? They achieve cost savings at the beginning but lose much more money in additional expenses over the subsequent years of operation.
How can this be avoided? To achieve real cost savings, project costs should be evaluated over the entire lifecycle rather than just the initial launch cost.
By focusing on project costs over, for example, ten years and evaluating the cost of equipment and scrap over this period, teams can calculate not only the purchasing cost but also the cost of operation, maintenance, service, and adjustments. In this case, companies will seek equipment that is optimal in the long term, not just for procurement.
By searching for equipment, services, and suppliers that are not necessarily cheaper initially but are more cost-effective over the long term, companies can save significant amount of money. For example, better construction, superior services, easier integration with other systems, and better reputation and support from the supplier can all contribute to long-term savings.
Using this approach not only for equipment but also for systems, services, and suppliers, teams can save and optimize project costs in many aspects, making it much more profitable.
If you need support and do not know how to calculate cost in a long terms, please contact us. Our experts will assist you and help to achieve your project goals!
Long-term Planning vs. Short-term Planning
