- by Todd Benadum
- December 28, 2021
- Blog, Transformer Replacement
Replacing a failed transformer comes as an unwelcome surprise with an unanticipated and unavoidable cash outlay. Facilities managers are immediately faced with two urgent questions: “How soon can we get power back?” and “How much is this going to cost?” The answers will depend on some key decisions made in replacing the transformer, but the urgency of the questions implies that both downtime and unanticipated cash outlays need to be minimized. This often leads to shopping around for a replacement transformer with the lowest price, which could turn out to be an expensive mistake.
A power transformer is a long-life fixed asset that provides a stream of vital services to an organization over several decades. The Total Cost of Ownership (TCO) of this asset involves a stream of positive cash flows (savings) and negative cash flows (expenses) over its useful economic life. The purchase price of the replacement transformer is just one of those cash flows, which happens to occur at the beginning of its useful life. There are others, such as installation costs, downtime costs, maintenance costs, and savings from increased power efficiency and a longer useful transformer life. Moving forward the relevant question is, what will be the TCO of the replacement transformer?
The acquisition of a long-life asset is an investment decision that can be evaluated logically by financial methods such as Payback Period, Net Present Value, or Return on Investment (ROI). In such an analysis, purchase price is just one of several cash flows over time that affect investment performance. The purchase of a replacement transformer is not a short-term unanticipated “expense”, but a decision to invest in a long-life asset. In comparing alternatives, the best investment is the one with the highest ROI.
Suppose the investment decision comes down to whether to invest in an ELSCO transformer with price PE or a transformer with similar specs from supplier X with a purchase price of PX. If PE happens to be greater than PX, does the initial price difference represent an avoidable cost or a good investment opportunity?
All transformer manufacturers have access to the same materials, and potentially to the same designs, the same manufacturing methods and the same best business practices. If they did everything the same, their unit costs would be about the same. In a competitive market markups are about the same, so offering prices closely reflect the relative cost of production. Differences in costs and prices result from differences in business strategy and choices. For the same transformer specs, the lower priced supplier X must be leaving something out. What are they leaving out?
We can’t speak for supplier X, Y or Z, but we can speak about The ELSCO Difference:
ELSCO designs and builds high quality in its transformers, not out.
(To see how we do this, please visit our new website at About US/The ELSCO Difference and at Transformers/How We Build Your Transformer.)
High quality laminated steel core, copper conductors, 220°C insulation, hand-wound and assembled construction and multi-stage testing cost a little more, but they pay off for our customers in higher reliability, longer useful life, lower TCO and a positive ROI compared to transformers from other suppliers.
By investing in an ELSCO transformer, you receive not only a premium quality transformer that will save you money by providing highly efficient and reliable power for several decades, you also receive a package of services that can easily save you more in up-front installation costs than the purchase price of the transformer. (To learn how we do this, please visit our new website at HOME/Save Money With ELSCO Quality and Service.)
When financial investment criteria are applied to the TCO of a quality ELSCO transformer, the result is almost always that choosing quality produces a significantly positive ROI.
ELSCO customers care about our quality and service because it pays off on their bottom line. It is a good investment.
We are so confident in the quality and reliability of our transformers, the we offer a five year warranty on our new dry type transformers The industry norm is one year.
To learn more about investing in quality with ELSCO, visit the Homepage and Transformer sections on this website, or call us at 800-232-9002 to talk with one of our engineering managers.