Low Price Or Quality and Lowest Total Cost of Ownership?
by Tom Hannafin
How much are you really saving when your valve selection and purchase is based only on price? Is saving the 5~7% up front price difference between Kitz and manufacturers considered "almost equal" the reason? Or, is it the 12~15% or more from a lower bidder? Have you really looked into how much the low price costs?

In the 1995 winter edition of the Kitz Kronicle, we published an article titled, "Valve Purchasers Need to Look Beyond Initial Cost of Valves", which presented ideas urging users to look beyond the initial price of valves to the "true total cost of ownership".

We define Total Cost of Valve Ownership as buying valves that meet or exceed customer requirements at the lowest total life cycle cost. Total life cycle cost is the sum of all costs associated with procurement, use, maintenance and proper disposal.

The purpose of this article is to focus on one component of a valve's life cycle cost, the capability of cost effective re-manufacturing. It may seem odd that a manufacturer is writing an article on valve reconditioning. We are in business to sell new valves. Actually, we support and encourage users to carefully and fully consider the benefit and value of reconditioning. The savings an owner achieves results in lowering ownership cost.

The return on investment an owner gains from a reconditioning program can only continue to be realized when the selection process for valves ensures only the best quality valve design and manufacturer be considered. Kitz benefits by being positioned with data to support being the preferred selection. We are only addressing re-manufacturing of a company's own valves that are reconditioned and used again by the same owner, not "surplus or bogus" valves of unknown origin.

Valve Reconditioning Program
Re-conditioning of valves is not new news. In the past, some manufacturers and a number of end users had in-house repair capability. Today, most repairs are usually performed by third party independent repair centers.

It is also not "new news" that, beginning in the mid-to-late 70's, domestic valve manufacturers responded to competitive pressure by "streamlining" their valve designs. Most of the well known, long term suppliers reacted in a similar fashion to reduce manufacturing costs. Valve designs at one time exceeded industry standards, were very rugged and performed well in service over an extended period. Many of the subsequent re-designs were being produced to meet national standard specification minimums, and competitive market prices.

Other cost reductions were sought and gained by closing down obsolete, inefficient, in-house foundries. In addition, orders were shifted from the few remaining domestic casting sources to lower cost offshore producers. The domestic foundries had a waning interest in continuing to pour difficult, irregular shaped, low profit margin pressure vessels.

Economic/political factors, new sources, and the ever present pressure for low price continues to have most suppliers constantly seeking and changing to lower priced vendors.

The effect of these changes reduces the quality assurance and control the manufacturers had when they produced in-house. It also appears in inconsistent casting quality, as well as variation in design and finished product.

End users are struggling to not just survive, but compete globally. At the same time, they must comply with the ever increasing regulatory requirements of EPA, OSHA, etc. They are also expected to be responsible corporate citizens in their community. The potential impact to owners due to the decline in valve quality increases the probability of risk and cost associated with failure. This could include loss of production, significant fines, civil/criminal sanctions, and the unknown cost of negative public relations.

The challenge to meet all the requirements is difficult, but ignoring or avoiding compliance is costly.

The consequences of these changes add cost to an owner. Inconsistent or inferior materials and workmanship result in valves that perform poorly in service and are no longer capable of being cost effectively reconditioned. Today, many new streamlined valves barely meet industry standards or customer requirements. Valves that become throw aways further burden the user by increasing the frequency of purchasing replacements. Also, users have to deal with the expense of proper disposal.

Reconditioning - Value for Users
Just like the cat who hopes for 9 lives, many users wish for their valves to have 9 lives. Unfortunately, unless this wish and valve selection is based on objective data of valve performance in service capability and ease of cost effective reconditioning, the chances are that the "cat" (valve) will only have one life.

Owners usage history, their knowledge, experience or supply chain preference has usually been the deciding factor for choosing the preferred manufacturer. Although the selection process may be perceived as subjective and open to challenge, until recently there was little objective data available to demonstrate value or cost savings. This is changing as some users are building a database to capture a manufacturer's valve performance in service. Combined with this, the biggest contribution of objective data is coming from independent, experi.....

one learns their philosophies and strategies are to view their valves as an investment. The owner's ultimate objective is to achieve a dividend by reducing overall valve costs. Users initially indicated a desire to achieve a 30% repair rate. Data now available clearly shows that when the best quality valves are used, the percentage of valves capable of repair is significantly higher. We believe that having access to this information is as vital to achieve cost reductions as the actual valve repair. Equally important is for a user to employ this data in their selection process to realize their goal of lowest ownership cost.

A requirement of any alliance formed with a repair center should include furnishing the user information contained in the shop's repair history for analytical purposes. This analysis will aid in identifying the root cause of failure or poor performance and correcting possible misapplication of valves.

In addition, the data may be of great help in resolving the differences in philosophies between a Project Group who is motivated by budget and price, and an Operations, Maintenance/Reliability Team driven by safety, reliability and cost. Objective data will show the best life cycle and lowest total cost of ownership.

Some valves on initial installation perform acceptably. However, only a valve of the best design, one which exceeds minimum standards, and a manufacturer whose valves are produced and governed by a verifiable quality assurance and control process will prove to be the optimum choice. The result is added value for an owner to achieve Lowest Total Cost of Ownership (LTCO). The best assurance an owner has is to select only the manufacturer(s) who has complete control of their manufacturing process. The QA/QC process is unique, not the valve, and the best protection for a user is to select the manufacturer(s) who has the best process control from design through production. To Buy New or Repair? While there are many reasons to choose repair, price of repair and availability vs. a new valve's price and delivery are probably major factors.

It is very important to recognize and understand that regardless if the products are to be repaired or modified, the steps performed are basically the same. Steps:

1. Determine how the product is designed to work;
2. Determine what the owner requires and wants the product to do;
3. Determine why the product does not perform as required; and
4. Repair or modify the valve(s) to meet the requirements.

It is important to note that valve repair shops are paid only for repairing or modifying the valve - Step #4. Through historical data and experience, knowledgeable and competent shops recognize that attempts to repair some manufacturers valves are not economically practical or even possible. Prior to accepting valves into a re-manufacturing program, experienced shops use this data to identify and cull valves that are produced to minimum design standards. This also includes valves of inferior quality, certain sizes and pressure classes or materials which preclude cost effective repair. At the same time, a less competent or unscrupulous shop will attempt to repair all valves sent to them. Whether they solve the problem or not, they get paid - because they completed Step #4.

The real inherent value of a reconditioning valve alliance program and the benefit to an owner, are the determinations made in Steps #1, 2 and 3. By following these steps, the focus is on root cause and a mutual team effort to seek a solution.

Owners who have had unsatisfactory experience with valve repair should look carefully at their valve reconditioning specifications. Users should look at their acceptance criteria, the capability of the shop doing the work, and also the quality of the valve(s) originally selected. Attempting to repair valves without clear specification or acceptance criteria is a recipe for dissatisfaction. Repair of valves that are poor performers, of inferior design or quality back to "like new" condition, is not the solution for users to meet requirements or objectives.

The bottom line is the quality of input. The quality of valves coming in for repair is directly related to the shop's output quality. Valve performance in service is the only justification for paying a higher price. If safety, complying with or exceeding regulatory requirements, and a valve repair program is inherent to a users overall strategy to achieve LTCO, it is absolutely essential that when specifying and purchasing valves, only the best quality designed and manufactured valves be chosen. The manufacturer(s) selected should have the best QA/QC process controls in order to avoid and eliminate the largest and fastest growing costs - those associated with failure.

Valve Re-manufacturing History
The following information is specific to Carbon Steel (WCB) Class 150/300 Gate Valves and is representative of the type data accumulated for different materials and valve types. The data set is one shop's valve repair record from 6/1/93 through 3/1/97.

The data is accurate and is subjective only on the basis of the shop's selection process. Knowledge, experience and the shop's historical data enable the professional, competent shop to identify the best valves. Those which cannot be considered candidates for repair are culled prior to entering the program and are not included in the quantity listed as received. The elimination process includes such reasons as recognized design deficiencies, a history of poor casting quality, improper weld repair to castings, etc. of certain manufacturers.

The valve shop's efforts to control reconditioning costs require elimination of the poorest quality valves from a repair program.

Good objective selection criteria of valves as candidates for repair is very important as the re-conditioner will probably be held responsible for other defects, if not found and corrected.

Repairing these defects, when found, increases the cost of repair beyond the price most end users find acceptable.

Based on this shop's selection criteria, 100% of Kitz valves are accepted into the reconditioning program. This is not true for most other manufacturers. From 6/1/93~3/1/97 there were a total of 4,974 (2,271 were 2"~6", the balance were 8"~24") Carbon Steel Gate valves received from 26 different manufacturers. The data set shown in Graph No. 1, covers 4,865 valves, as manufacturers with less than 8 valves were eliminated.

Ten of the 26 manufacturers are listed independently and account for a total of 4,074 valves or 83.7%. Although Kitz is identified, the others, including the grouping of 16 are combined manufacturers, with a significant presence in the cast steel market.

All Kitz valves, a total of 1,096 met the eligibility criteria and entered the program; 964 valves were cost effectively repaired in accordance with standards and customer requirements. The overall repairability of Kitz valves is 88%.

A quantity of 3,769 valves which were not culled prior to entering the repair program were received from the other 25 manufacturers. A total of 2,504 (or 66.4%) were reconditioned.

1. In assessing the data of Graph 1 and the summary, we think the following observations and logical conclusions can be made.
2. An owner whose philosophy and strategy is to achieve Lowest Total Cost of Ownership (LTCO) must select and purchase from the supplier(s) having the best quality product and manufacturing process. This affords users the best chance to achieve a return on their investment and lower their ownership cost;
3. It appears obvious that, if lesser quality valves are purchased, it will be very difficult to achieve and/or maintain the savings gained by using the best quality;

   Without selection of the highest quality valves, a "valve program" would not be practical or may not be possible. There are simply not enough good quality mix of valves (of another brand(s) combined) in a users valve pool to achieve or maintain the savings gained when using the best quality;

4. Continued use of high quality valves will ensure the owners on-going ability to lower cost;
5. Savings will also be achieved by reducing the frequency of valve related failures which cause increased demand for purchasing even lower price and quality valves.
6. Given that 100% of Kitz valves meet the valve shop selection criteria and enter the program, the 88% repairability rate achieved suggests that in a reconditioning program the data shows Kitz' inherent quality makes multiple reconditioning a reasonable expectation.
7. A user can achieve a net reduction in their valve unit prices by combining the cost of new valve purchases with re-manufactured valves.
8. The data clearly shows that the initial goal of a 30% repair rate is very low. For an owner to benefit from a valve repair program, unless the poorest quality valves are used, the minimum target should be 70% repairability. The best way to achieve this goal is to buy only the best valves which have proven to be capable of cost effective repair.

Table 1 Example: 8" Class 150 Carbon Steel Gate Valve · Base price for 8" valve is approximate selling price to the end user. · Reconditioning cost is an approximate mean cost quoted users from a competent repair shop for reconditioning all manufacturers valves (8" Class 150). · Reconditioning data percentages derived from Graph No. 1

We hope this article will stimulate your thinking and support decisions based on Lowest Total Cost of Ownership, not just low price. We welcome any comments or questions.