9 tips for making the right equipment purchase
Read time: 6 minutes
The right equipment can improve your processes, productivity, capacity to innovate and bottom line.
But to get those results from a major capital investment, you need an investment plan that addresses both your short- and long-term needs. Not only will you save time and resources, but you'll also avoid costly quick fixes.
These nine tips will help you make the right equipment purchase.
1. Assess your business reality
It is important to understand your objectives.
- Are you looking to increase productivity?
- Will this new equipment make you more successful in the marketplace?
- Will it help you stay ahead of your competitors?
- Can you upgrade instead of buying new equipment and still get better performance?
Be sure you have answers to these questions before you buy. Avoid being influenced by aggressive marketing campaigns that make unrealistic claims.
2. Get an external point of view
Depending on the scale of your investment, it may be worth working with an external consultant who can ensure you make the most of your purchase by helping you assess your needs.
Initially, you'll be looking at important factors such as capacity, employee usage and current resources. The most common practice is to do a cost-benefit analysis, which helps you justify your purchase and determine the pros and cons.
If you're in manufacturing, you may use an asset utilization ratio, which measures your ability to get optimal results from equipment and other assets. The premise is that more efficient equipment will give you better results.
3. Invest in digital technologies
A 2017 survey of 960 Canadian manufacturers found that companies who adopted digital technologies reaped impressive rewards, including improved productivity, lower operating costs and better product quality.
The main driver of productivity growth is the capacity to predict and prevent downtime, and to optimize equipment effectiveness and maintenance.
Cost savings come from:
- real-time production monitoring and quality control to reduce waste and rework
- predictive maintenance to prevent costly repairs and unplanned downtime
- higher automation to save labour costs and improve throughput
- the use of 3-D printers to achieve faster prototyping, reducing the cost of engineering and accelerating time to market
Meanwhile, improved quality comes from technologies such as real-time quality controls.
4. Create a technology roadmap
Rather than making isolated purchases, look at the overall needs of your business and plan for the long term. This is where a technology roadmap can help.
A technology roadmap is a planning tool that aligns your business objectives to long- and short-term technology solutions. It should help you understand your current technological systems, set technology development priorities and provide a timeline for the implementation of new systems.
The first part to building your roadmap is to get a clear picture of what you are already doing and mapping out your processes.
A process is a series of activities or operations that must occur in a specific sequence to create value for the customer in the form of a product or service. Some example of processes include:
- Receiving and shipping merchandise
This exercise will help you see what’s working well and what’s not. It’s also an opportunity to look at your current technology, the way you use data, and any gaps in competencies or resources. Most importantly, this mapping your technology roadmap will help you identify investment opportunities to improve your customers’ journey—whether it’s by buying new equipment, new technology, or optimizing certain process.
5. Shop around for suppliers
The Internet gives you access to a wide range of specialized equipment companies, so take the time to browse. Check out newsletters targeting specific industries, and attend trade shows where you can get some hands-on time with equipment. You can also contact industry associations for more information.
Don't let price alone guide you in your supplier decision. Also consider aspects such as post-sales service and a supplier's reputation, and get references. If you're a loyal customer, you can ask for better warranties or an extended customer service plan.
6. Keep training in mind
All too often, entrepreneurs don't consider the time, money and resources required to train employees on new equipment. You want to avoid the productivity drop that occurs when employees take too much time to adapt to new technology or processes.
If the equipment is new or has new features, you can assume employees will face a learning curve. It's important to head off problems by ensuring that you have the financing in place to address the resulting downtime. You'll need to block off time to train employees and still be sure that your operations can run at capacity.
7. Decide whether you want to buy or lease the equipment
Purchasing enables you to own the equipment as soon as the transaction is completed. Your company amortizes the cost over the lifespan of the equipment. It may be possible to get financing for more than the purchase price. BDC, for example, offers up to 100% financing for the cost of the purchase and the possibility of additional financing to cover the cost of installation, training and transportation.
Leasing or renting options may be appropriate for equipment that quickly becomes obsolete or is needed for a specific project. Renting can make your payments lower than they would be if you purchased the equipment. However, you do not own the equipment, and you will have to wait until the contract ends to buy it. The price you pay at the end of the contract may be lower than the initial purchase price would have been, but since you've also been making payments, this option may cost more in the long run than others. Depending on the structure of the lease, your payments may be included as part of your operating costs.
8. Think safety first
A healthy and safe work environment means your employees and your company can be more productive, and this rule applies to your equipment and technology purchases as well.
Your suppliers are responsible for selling you equipment that can be used safely, but you are responsible for ensuring that your employees follow safety rules. For more information, visit Workplace Health and Safety, a site run by Human Resources and Skills Development Canada.
9. Keep it green
When purchasing equipment or technology, be sure that it's energy efficient. Not only will you be saving money, but you'll also be contributing to the health of the planet. Research the environmental impact of your new equipment and find out how to dispose of your existing equipment in a way that minimizes its impact on the environment.