Is Your Electrical Equipment Costing You More Than it Should? 11 Solutions to Avoid Those Hidden Costs.

When it comes to the custom-designed electrical equipment on which oil & gas operations depend, how do you obtain the best value and return on investment (ROI)? A survey conducted among oil & gas, oilsands and mining engineers revealed the key: defining “Best Value” by factoring hidden costs into the Total Cost of Ownership (TCO). Hidden costs can add as much as 30% to the purchase price of critical power distribution equipment. The following real examples illustrate archetypal hidden costs that had an adverse effect on the total cost of the equipment:

• The vendor missed his promised delivery date to a Northern Canadian operation accessible only by a seasonal ice road. When the equipment was finally ready, the ice road had thawed and the custom gear had to be delivered by air for an additional $35,000.
• A company discovered that a portable-power substation that was meant to be pushed into position by a loader arrived with the power-cable couplers mounted precisely where the loader would contact and therefore damage them. Workers had to remove, relocate, and rewire the couplers.  Unfortunately this cost remained hidden as it wasn’t reported back to purchasing.
• An open-pit operation in Western Canada ordered equipment from a lower-cost foreign vendor. Upon arrival they discovered its design, protective relays, and transformer were all in violation of Canadian electrical codes. The equipment could not be used.

Surprises like these wreak havoc on budgets and timelines. When you start your project by defining the “Best Value”, (as opposed to TCO alone), you can avoid unpleasant surprises and drastically improve ROI on your mission-critical electrical equipment. The Best Value Model delivers a more sophisticated view of TCO by analyzing eleven crucial considerations:

1)    Initial capital equipment cost  

Initial price is the easiest value to quantify, but paying too much attention to the lowest upfront cost can be counterproductive, especially when reliability and quality come into question.

2)    Upfront design engineering time

Extensive preliminary engineering is required to ensure new equipment will meet load demands and provide seamless integration with existing electrical distribution systems. Vendors with deep design and application expertise can supplement both internal engineers and external consulting firms to reduce overall engineering costs.

3)    Schedule

When delivery deadlines are missed, you can incur costs related to downtime, idle employees and contractors, logistics, and lost production. Vendors should be evaluated for a proven track record of on-time delivery.

4)    Installation and commissioning cost (vs. rework) – Commissioning costs can vary widely.  Purchasing lower-cost equipment only to find it requires days of reworking because it is out of specification, defective or is unsuited to actual conditions wastes labor hours and results in additional costs and expensive downtime.

5)    Maintenance costs

It is vital to understand that different components in custom-designed electrical equipment may have vastly different maintenance requirements beyond stated routine maintenance costs.

6)    Downtime

In any process industry, downtime is costly. To avoid downtime, the vendor’s reputation for making reliable equipment should be taken into consideration.

7)    Energy savings

You can maximize energy efficiency by ensuring that as a minimum, equipment is chosen that meets electrical-code requirements and applicable national standards. For example, both Canada and the U.S. regulate transformer efficiency.

8)    Savings realized from innovation

Innovative new equipment can help reduce costs through direct or indirect labor cost reduction, lower maintenance costs, process improvement and higher output.

9)    Quality

Higher-quality design engineering, integrated components, manufacturing processes and assemblers all contribute to the quality that reduces the chance of catastrophic equipment failure. Better quality can mean avoiding the total costs of repair or replacement, downtime and lost production, removal and reinstallation, delivery, and engineering to integrate newer equipment.

10) Customer service and vendor experience

Oil fields tend to be in remote, difficult to access locations. When problems arise, you need answers, replacement parts, and engineering expertise immediately. Does the vendor offer that level of service so you can avoid downtime?

11) Safety

Custom-engineered electrical systems should be designed for safety. For example,  equipment can be designed with control panels and operator interfaces physically removed from breakers and hazardous zones; advance safety interlocks can be set to reduce hazards during maintenance; and designs should include arc flash relays, ground-fault relays and circuit protection.

These eleven considerations are part of the formula for determining Best Value, which will give you a far more complete reflection of the long-term performance of suppliers and their equipment. To learn more, download the white paper, “Beyond Total Cost of Ownership: The Best Value Purchasing Model for Custom-Engineered Electrical Equipment” at www.Littelfuse.com/TCO.