New, used, or refurbished?
April 11, 2005
|Refurbishing can be a cost-effective way to breathe new life into an old piece of equipment. This cam feed was originally built in 1974.|
Recent economic growth finally has spilled over to the manufacturing sector, so this might be a good time to upgrade your stamping process. While orders may be increasing, so is the demand for lower part cost. By evaluating your current coil handling process, you may find that the aging equipment and controls are hindering your flexibility, productivity, and efficiency.
For nearly all manufacturers, making major capital investments in new, more advanced machinery is no longer solely a competitive strategy, but a strategy for survival in an increasingly demanding market. New equipment, when compared to used or refurbished, may appear to be the most expensive option, but new equipment often offers the best value for the dollar. You may need to look to state-of-the-art machinery to handle shrinking lead-times, pursue new markets, and increase production ... all while remaining competitive. These are some of the factors other than price that forward-looking purchasing executives consider when making equipment decisions.
The old thinking was that a capital investment program consisted only of replacing worn-out machinery. This has changed. No longer are we preoccupied primarily with the physical life span of equipment when considering a capital investment. The main consideration now is the economic life span of the plant as well as the machines. To reach intelligent decisions on capital investments, you must consider long-range objectives, future technology changes, the need for additional products, and other factors unique to your company.
How should you go about forecasting the future cash returns from a prospective investment in capital equipment? From the standpoint of practicing capital budget analysis, start by preparing accurate forecasts of future returns from the proposed capital equipment investment. In other words, forecast future returns first by forecasting the future rate of return, which your company will realize on the cash, receivables, inventories, and fixed assets in the line of activity to which the capital equipment relates.
For example, consider a case of cost-reduction equipment. (Cost-reduction equipment is defined as equipment purchased for the sake of performing the same function as an existing piece of equipment, but with more productivity or better efficiency—that is, it contributes to cost reduction.) The forecast of future investment returns involves estimating the future savings that will be realized in labor, material, and other costs for some forecast level of future output. The great strides made in increased output per labor-hour and output per dollar of investment have been made to a great extent by installing better machines. If your company is to continue to improve productivity, it is necessary to replace obsolete equipment. Replacing obsolete capital equipment almost always makes possible increased production as well as higher productivity.
|This stationary feed was retrofitted with a traversing capability to provide the user with the capability to run coils or blanks.|
For most businesses, the most complex, excruciating decision they must make is whether to purchase additional capital equipment. They ask, Will the market support it? What will the economy do? Can we afford more debt? Can we consolidate production and sell existing equipment?
The bottom line is that you must analyze the market and make sure you can get a return on your investment. You do this by asking whether your current customer base will support the additional capacity. If not, you must decide if you are capable of expanding your market. Determine if your competition already offers the same capabilities. If so, you must decide if the prospective machine will produce a better product, run faster, or provide other competitive advantages.
You should analyze your customer base by looking at the growth of various revenue channels, determine how much potential growth you can achieve from them, and then estimate how much growth you can achieve from new customers. Consider overall economy activity as well, but always look specifically at the economic projections for your industry, both regionally and nationally.
Many times companies consider purchasing equipment when they bid on or win a contract for a specified amount of time. Contract work can justify adding equipment, but you must consider many factors related to the contract. Most important is the duration of the contract. It is extremely difficult to justify purchasing capital equipment if the contract work does not cross over into your main business focus, especially if the contract is for only a year or two. If the contract is for several years with the option to extend it even longer, then it becomes easier to justify the expenditure.
The marketability of the equipment is another important factor when considering an additional or replacement machine. This is especially crucial if you are looking at new equipment for a contract or if you are looking at entering a new market altogether.
If after careful analysis you have determined that you need to replace or add a line, the next decision is whether to buy new, used, or refurbished equipment. Some factors to consider are: what, if any, support you will receive after the purchase of used or refurbished equipment; whether the supplier provides service, technical assistance, training, and equipment information such as a recommended preventive maintenance schedule, drawings, and a recommended spare parts list; and whether a warranty is provided.
New Equipment. Advantages of new equipment include the most up-to-date components and controls that provide improved accuracy, integration, energy efficiency, and safety. Most new coil handling equipment has controls that allow full communication with presses and ancillary equipment, which potentially can reduce the number of equipment operators needed, setup time, and downtime.
Another important attribute of new equipment is its ability to deal with new higher-strength steels. Older equipment was not designed for materials that did not exist when it was made. New equipment is engineered and built for these new steels, as well as for prepainted, embossed, and other application-specific materials.
Used or refurbished equipment. New equipment may not be the best option for every company or every situation. In many cases, used or refurbished is the way to go.
When considering refurbished equipment, bear in mind that the extent of the refurbishment influences the price. Find out how the equipment was refurbished—electrically, mechanically, pneumatically, or hydraulically. A general inspection can help you identify potential problem areas before making a purchase.
Following is a general list of areas to inspect or evaluate when considering equipment sold either as-is or refurbished.
Hydraulic Power Unit:
Electronic Servo Feed:
In addition to these general items, it is also important to ascertain the condition of the components in the main electrical enclosure.