Replacing old equipment: A simple way to boost your company's capacity
No one wants to spend money before they have to. At the same time, you don’t want your business depending on a piece of gear that has long outlived its usefulness. So how do you know when it’s the right time to invest in new equipment?
Trevor Fillo, Senior Account Manager with BDC, says the key is to regularly take stock of your needs and check that your equipment is still meeting them. It’s a practical approach that doesn’t require sophisticated formulas or costly predictive software.
“You know for sure it’s time to upgrade if your equipment is costing you money instead of generating revenue, causing downtime or both,” says Fillo. “But there are some other things you want to think about as well.”
He offers five tips for making the right replacement decisions at the right time.
1. Assess your needs regularly
At least once a year you should be looking at what you’ve achieved, what your next goals are and how your business is performing. If you’ve grown lately or expect to grow, will your current equipment meet the new demand? Maybe you need a new machine to complete a specific project. Check your needs against the current state of your equipment and see if you have any gaps.
You should also look at your asset utilization ratio. This calculation is based on your financial statements and tells you how well your current equipment is contributing to your bottom line. If you think you should be more productive and profitable, your equipment could be part of what’s holding you back.
2. Think about safety
Standards are changing all the time and manufacturers are always making their equipment safer. A major safety improvement in a piece of equipment you use regularly may mean it’s time to upgrade.
For example, excavators have changed over the years to include overhead protection and automatic shut-offs to protect operators from falling objects and moving parts. The long-term health and safety benefits of such changes may be well worth the upfront replacement costs.
3. Consider your operation as a whole
Every business is a system: The parts depend on each other. Before you upgrade any equipment, consider how it might affect other parts of your operation—or how any changes to your operations might lead you to need new equipment.
For example, if you give your field technicians a new piece of software, will it be compatible with what’s used by your sales team to manage customer relationships? If you move to a new, bigger warehouse facility, will you need new forklifts to carry more stock across longer distances?
Fillo remembers a pizza maker who wanted to increase production but didn’t want to spend more on additional space or employees. Instead, he found stacked ovens that would fit into his existing space and doubled his production while day-to-day expenses remained much the same. There were no downsides to that replacement decision because he thought ahead.
If you’re buying new equipment for a special project, it’s a good idea to calculate the resale or salvage value ahead of time to make sure it’s worth the expense. If the equipment is going to cost you more than the value of the project, it may not be worthwhile.
4. Consult your people
“You have to talk to the boots on the ground,” Fillo says. Go to the floor and ask those operating the equipment if it is doing the job.
Your employees know what improvements are available to you because they may have friends and contacts at other companies in your industry. They may also be able to tell you if parts for a new piece of equipment you’re considering can be easily replaced or repaired. Your team is a source of honest advice and consulting them can help you build trust and rapport.
5. Make sure you factor in training and downtime
Training on new equipment is necessary—and that probably means reduced production during the training period. But this doesn’t have to be a complete shutdown. Half your staff can be trained for part of the day while the rest can be trained later that same day. Also, most manufacturers include training in the sale, so be sure to make that part of your deal.