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November 1, 2006

what's it really worth?

Companies have little trouble justifying investments in equipment used to make goods—it's understood that machine tools, assembly equipment and the like are necessary to create wealth. But when it comes to material handling equipment, it's a different story.

By George Weimer

"Wow! Look at the price of this stuff!" "One lift truck costs how much? And I need a whole fleet!" Don't be surprised if you hear comments like these at the January ProMat Show in Chicago. In fact, you'll hear such complaints at almost all trade shows these days. The fact is, equipment is expensive, whether it's equipment for making products or for moving them around.

Companies have little trouble justifying investments in equipment used to make goods—it's understood that machine tools, assembly equipment and the like are necessary to create wealth. But when it comes to material handling equipment, it's a different story. All too often, business managers see material handling as a cost—albeit a necessary one—of doing business. In their eyes, the equipment is just a means of moving products around and does nothing to increase their value.

So what does it mean to add value? It depends on whose definition you use. The standard academic definition says any operation that makes something worth more than it was before the process adds value. Take a piece of steel and run it through a lathe and you get something on the way to being a part of a car or a plane or what-not. Its value just went up. Take that same part to storage or put it on a pallet for shipment on a truck or train to another plant or distribution center and you've spent money on movement and/or storage but you haven't added any value to the product. True. But consider the lack of common sense here (which is one definition of academic).

Value in business is a matter decided upon by the customer and no one else. The customer pays and therefore defines value. What the customer expects—or rather, demands—is a high-quality product that is delivered on time, in good condition and in the correct amount. The customer's definition of value, like the ultimate consumer's, is much broader than the academic economist's. The customer expects its order to be filled both on time and correctly. That's material handling's contribution, and it is as crucial as the manufacturing function itself.

The customer values on-time delivery. The customer values high quality and safe storage and retrieval. The customer values reliable suppliers and dependable deliveries. The customer values the assurance that its order will be filled correctly. All of these attributes are as important in today's global marketplace as the modern, high-quality, value-added manufacturing technology itself. One without the other is valueless in terms of the economy. One without the other is, in effect, a failure.

In other words, there's more than one way to add value in business. Clearly, the tools of production add value in terms of the product itself. Material handling equipment and systems, on the other hand, might be called tools of movement and fulfillment. You need both kinds of tools, and both have to be state of the art or you will not succeed.

So the next time you make the rounds at ProMat or any other material handling show, consider this. The finest products in the world are worthless unless they're packaged properly, stored correctly and delivered on time. Material handling equipment and systems are as expensive, pound for pound, as other high-ticket machinery. But, they deliver, pound for pound, all that industry produces. Without them, your business, all business, grinds to a halt.


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