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"What is the meaning of ‘the lifecycle cost of oil’ and how is it calculated?"
Sometimes a higher performance product costs less than a commodity-type product, even though the price is higher. To gauge whether this will be the case, you should look at the product lifecycle cost rather than the purchase price.
The lifecycle cost of oil is effectively the total long-term use cost for a given product from oil change to oil change. There are a variety of indirect, but nonetheless valid, costs and time commitments that factor into an oil change, including the following:
1. Oil specification.
2. Oil purchase, including purchase document generation and sending the purchase document.
3. Cost of the oil itself.
4. Oil receipt and storage, including tracking of shipment paperwork to affirm receipt and re-work for errors and omissions.
5. Invoice receipt, approval and payment. This item alone can add a lot to the real cost of plant lubrication.
6. Oil transfer to the user or the asset.
7. Oil disposal cost, if any.
8. Cost of labor associated with the oil change.
9. Cost of other materials associated with an oil change.
10. Cost of monitoring the new oil for the life of the oil.
11. Cost of degradation effect, including loss of oil strength, loss of filterability, loss of cleanliness, corrosion and corruption of mechanical surfaces.
12. Cost of machine downtime if there is any associated with the oil change.
There may be other costs that you could identify for your specific organization. If you estimate each actual incremental cost or time requirement, apply a normalized labor rate for the time and then add the various costs together, you could accurately guess the total lifecycle cost of an oil change at your facility. It is higher than you might expect.
While all of these items do not show up as a line item in the maintenance budget report, which is generally limited to the cost of the purchase itself and is measured by cost per pound or cost per gallon, the costs are nonetheless absorbed by the organization and add to the total cost per item manufactured.