Document Type

Closed Project

Publication Date

Fall 2006

Instructor

Dinesh Shah

Course Title

Engineering Economics

Course Number

EMGT 535/635

Subjects

Engineering economy, Printers -- Industrial procurement -- Economic aspects, Technology -- Management

Abstract

Andrews Corporation is looking to implement a new printing system for their employees to use on site in Portland, OR. There are 2 primary considerations for Andrews. The first is to decide if they should join Xerox’s Free Color Printer program (FCP) or purchase Xerox c2424 printers outright. FCP membership requires that Andrews print a minimum of 2000 prints per month, half of which must contain color. They would be required to purchase all consumables through the program at posted costs. The printer, however, would be given to them at no charge, as would any required maintenance. The contract can be extended for as long as 3 years, at which point the printers would belong to Andrews with no additional obligation. The second option, which lines up better with Andrews current print volumes, is to compare and select from lower-end printers from various companies. For both decisions, Andrews decided to focus the selection criteria on the financial aspects of the problem, and asked the project leader assigned to the Portland Office expansion to complete an economic analysis to determine the most cost effective option for the company

For the first option, FCP vs. purchase, it became evident from looking at a simple cash flow diagram that the FCP program would be much less expensive if Andrews was able to print within the specified requirements. However, benefits and costs beyond the essential monetary values would have be considered and evaluated. From a buyer perspective the opportunity benefits are quite simply a full service product with very minimal startup costs. The cost of being a part of this program is not the opportunity at the point of sale, but the opportunity cost of the next 3 years of opportunities. Most companies remain competitive through their ability to adapt and make continuous efficiency improvements. The 3 year program life stalls the Andrews’ opportunity to reduce the marginal costs associated with using the printer and also stalls implementation of higher technologies. This is a very critical decision to consider because it is rare that a company would have the ability to forecast future efficiencies and opportunities.

The second option, to purchase lower-end printers, was evaluated using present worth and equivalent annual cost analyses. Based upon the present worth comparisons under various print volume and color printing options, Andrews Corporation was advised to purchase the Dell 5110 printer. This choice provided the lowest cost option regardless of print volume as long as Andrews prints less than 75% of their documents in full color. Since Andrews intends to use the printer for general office printing needs, they are comfortable with this selection based on this expected assumption.

It is important to remember that the recommendation is based solely upon the economic merits of each printer and does not consider or score options based on more subjective variables. It does not take into account previous experience that Andrews has had with printers from any of these companies. It also doesn’t take into consideration ease of use, availability of consumable items (whether they are stocked in local office supply stores or must be special ordered), reliability of the printers, consumer reports ratings, or other non-monetary aspects that must be considered with any large, long-term purchase.

Rights

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Comments

This project is only available to students, staff, and faculty of Portland State University

Persistent Identifier

http://archives.pdx.edu/ds/psu/23306

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