Discovering the hidden costs of CAM
by Bill Gibbs, President
Gibbs and Associates
Consider direct and indirect expenses
A new CAM buyer spends a lot of time researching the purchase of the CAM system that he hopes will solve all of his NC programming problems.
The novice charges off with a long list of features to check and tally. The more experienced evaluator has a few key features to find and a desire to see how his co-workers will be able to program his parts, his way.
I am often surprised at how people of all experience levels miss the big cost issues of a CAM purchase. It is a lot easier to focus on purchase price than to determine the true implementation costs of a specific system. Unfortunately, purchase price is only a very small piece of the total cost.
The costs of implementing a CAM system can be broken down into two categories. First, direct costs are out-of-pocket expenses related to implementation of a CAM system, including the actual purchase price. Second, indirect costs create loss of income, typically due to loss of labor, machine time, production, and sales. Since indirect costs can greatly exceed the direct costs, let's start with these.
Indirect costs
One common mistake made by a small business is to undervalue indirect costs. If a machine could have made a good part and generated $100, having the machine sit idle costs you $100. This is called an opportunity cost.
The concept is simple enough. The cost to your business is the difference between the revenue you generate through some activity, and the money you could have generated through your best activity opportunity. So an idle machine's cost is not its lease payment divided by the number of hours in a month. Rather, it is the $100-per-hour it could have earned you.
This principle works the same for an employee, or even an owner/manager. If the owner/manager could have been creating new business for the company, the cost of using his time for something else is quite high.
For the purpose of discussion, let's keep it simple and say that a machine should generate $100 per hour, while an employee should generate $40 an hour of revenue to your company.
The first indirect cost is the cost of evaluating CAM systems. If four people in your shop watch a four-hour CAM demo, you've just lost $640 (assuming no machines are sitting idle as a result). If you watch four demos, you are up to $2560. It adds up quick.
Next, consider training. If you train two employees for three days, you've lost another $1920. So without machine downtime, you've invested almost $5000, not including the price of the software.
In a worst-case scenario, both the demos and training could have left machines sitting idle. If every person left a machine sitting idle for demos and training, the total rises to almost $11,000.
This is one example of why CAM-experienced people place such a high value on ease-of-learning and ease-of-use. There is a big difference in cost between three days of training and three weeks of training. The indirect cost total continues to rise during the entire period that the newly trained programmers are less-than-fully proficient.
Some CAM systems require months or years of experience to acquire competence. An easy CAM system, with a good training program, good manuals, and good customer support, can dramatically reduce these costs.
As you can see, a poor CAM decision can lead to indirect costs that well exceed the price of the CAM system. You can still be losing money due to longer training times and poorer part programming years after the original purchase.
Direct Costs
Direct costs of a CAM purchase include more than the price of the software. The software price itself is usually not simple. Virtually all CAM software has a variety of available feature options.
The idea is good—you only buy what you need. In practice though, no two CAM companies package their features the same way. This can make it difficult, if not impossible, to compare apples-to-apples pricing for two different CAM products. It also opens the door for unscrupulous sales people to low-ball the pricing by omitting expensive options, knowing that once you're hooked, you'll come back and buy the rest.
Once past the software price, you must consider the cost of services. What will training cost? How much training will you need? What about wiring your computer to your machines? How much will phone support cost? Is it factory or dealer phone support? Be wary of free services. They may be a great deal, or they may be totally inadequate, hiding your real future costs.
Another cost to consider is maintenance. Most CAM products get better each year. Most CAM customers want new features and bug fixes. Every CAM company is different in its approach. Some will let you buy future versions at a discount. Others charge an annual fee that buys you updated software. Both can be reasonable solutions. You need to be clear on the costs and benefits of these important programs.
I recently saw quotes for two different CAM systems, both with a list price of $10,000. The customer wisely insisted on getting all training, phone support, initial services, and first-year maintenance on the same quote. CAM system A's total was $15,000 while CAM's B's was $35,000.
So before you base your decision on a $1000 difference in list price, take a hard look at the very real direct and indirect costs involved in your new CAM purchase.