By Stephan Waltman
Published in the July-August 2010 issue of Retail Environments
At A.R.E.’s convention last November, economist Alan Beaulieu of the Institute for Trend Research discussed the tactics he believes that companies should focus on during the late recession and early recovery phases. Beaulieu recommended that in the late recession phase companies should consider capital expenditures and acquisitions in order to prepare for the coming recovery. And in the early recovery phase, he suggested working to improve efficiencies in your plant with investments in technology and software. There are also some fairly mundane reasons to consider purchasing equipment now.
- The installation of machinery can be a significant disruption to a factory. With production levels down, interruptions may be minimized.
- Machinery suppliers are motivated to help. The downturn may have created excess inventory and prices could be attractive.
- The U.S. dollar is stronger against the Euro, making machinery from Germany and Italy more affordable than in past.
- The introduction of new processes can be overwhelming to staff, but during this somewhat slow period the process may be absorbed at a reasonable pace.
While the commitment to spend at this time may seem counterintuitive, consider all aspects of the risk and the significant benefits of the reward. Companies are challenged by the economy, work force constraints, the rise of imports, and government intervention. Ironically, these same issues make the case for purchasing technology at this time.
The economy. Upgrading new equipment can help your sales and marketing efforts by allowing you to offer new products or more cost-competitive existing products. It is also possible that this could be the time to offer new materials and/or other design features to generate sales activities. New productive capabilities may be the stimulus you need to compete.
Work force constraints. New innovations have led to smaller, more flexible solutions that are faster and require less human involvement. Machine versatility and simplicity are in high demand, as factory owners look for highly reliable equipment that can quickly and easily make a variety of products. These innovations lead to a smaller, more highly trained workforce. Gone are the days of the mass production, low-skilled workforce.
The rise of imports. While research supports the concern of rising imports (mostly from China) the opportunity to benefit from this external force is to maximize your capability for mass customization. This most likely will require technology from order entry to the shipping dock. If you want to insulate yourself from foreign competition, create innovative designs that can be customized with minimal effort. Then deliver that product in short periods of time. You will eliminate inventories of raw materials and work in process at the same time. New methods will save money while gaining new customers.
Government intervention. Key concerns looming on the horizon include health care, but there are also incentives. Look to section 179 and section 199, for example. Section 179 and section 199 are government incentives that offer reduced tax liabilities for investments within certain guidelines. Each company’s situation is different; consult your tax advisor.
Growing your business in these times may have its challenges but there are bright spots. Companies looking for funding might consider contacting local community banks. More and more of these lenders are ready to assist you when the “big guys” are not. This website, http://us1.irabankratings.com/MoveYourMoney/iRAMYMForm.asp, may help you locate a bank near you. Ironically, the rates for approved trans actions are at an all-time low. This external benefit is something worth looking for.
Making the new vs. Used decision
These are difficult times for much of the store fixture industry, as is evident in the number of auctions and the availability of used equipment. The lure of “the good deal” is ever-present. Here are a few critical points to consider when buying used.
Take care to account for all costs associated in the winning bid:
- Buyer’s premium is typically 10 percent.
- “As is/where is” is just that—the machine usually needs to be prepared properly for shipment by a qualified technician. Sophisticated machines like CNC routers or sanders need special care prior to shipment.
- Allow for proper skids and bracing at your expense.
- Allow for rigging and trucking.
- Plan for unloading and placement in your factory.
Make sure that you have all pre-installation information, so that you can understand your costs prior to purchase:
- Weight
- Proper handling
- Special equipment (cranes, forklifts, etc.)
- Insurance
- Any special support pad required
- Dust extraction, volume, and velocity
- Qualified installation
- Training
- Compressed air capacity
- Proper tooling, manuals, etc.
Keep in mind also that used equipment typically has no warranty. Older machines may also be using unsupported versions of hardware and software. An unofficial industry rule of thumb is to double the winning auction bid price to value the purchase against the cost of a new machine. Also, be mindful of restrictive financing covenants that may discriminate against used equipment with higher interest rates on loans and leases. For more information on evaluating used machines visit www.sismachinery.com.
The basics of buying new equipment
When considering the purchase of new equipment, it’s important to use a team approach to capture all aspects of your processes. I suggest challenging your supplier to accept responsibility for recommending the machine and support materials that best solve your immediate problems and anticipate your needs during the recovery.
Take into account how this new equipment can support your company’s lean manufacturing and green (environmental sustainability) initiatives. Most new equipment solutions offer automation to facilitate lean practices such as faster setup and change-over, flexible programming, and one-piece flow. Another big advantage of installing new machinery should be the adoption of green engineering. Ask your supplier to explain how developments in tooling, dust extraction, and energy management can help justify your investment.
Analyze the benefits of “smart” machines; easier to operate, reduced labor costs and waste, less downtime, and increased productivity. Even machine maintenance has been simplified with technological and software advancements as self-diagnostic machines and remote monitoring have dramatically cut down maintenance time. Not only can smart machines provide onscreen diagnostics and track tool life, spindle hours, and various component hours, these machines can also direct themselves to maintain oil and grease cycles.
In addition to technology, safety issues are influencing the woodworking machinery industry. Operators are no longer concerned just about cuts and lacerations. New issues regarding respiratory, auditory, and ergonomic conditions are impacting the industry like never before. Talk to your supplier about how machinery choices can affect these types of emerging safety issues.
Ultimately, you should consider the total cost of ownership. Take into account all operating costs and support costs (parts and service) associated with your selection. Go out five years with your spreadsheet in order to make the decision that’s right for your company.
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Another related article about Used Machines
http://www.windowanddoordigital.com/windowanddoor/20100607#pg33