April 6, 2016
As a supplier of corrugated machinery, our company is often asked to provide assistance on how to justify new equipment. While every project is different and there are many contributing factors, this article is intended to provide you with a basic checklist of things that help justify the investment.
Item 1: Increased Productivity
Faster, more efficient machines with quicker setups result in more productivity. Most suppliers can provide a spreadsheet that will assist you in calculating the productivity you can expect with the purchase.
Item 2: Improved Quality
New machinery may provide the ability to produce a higher-quality product. This will allow you to better compete and satisfy customer requirements. It is critical that you request samples of similar products and, if possible, do trials to confirm the improved quality.
Item 3: Scrap Reduction
Newer technology is designed to reduce excess scrap generated from setups, changeovers, splices, etc. These are easy to quantify and will help pay for a new machine.
Item 4: New Products
Machinery investments can potentially lead to new products beyond your present capabilities. This may mean entering into new markets or satisfying an existing customer with additional offerings.
Item 5: Cost of Ownership
Older machines typically produce at a higher costs per unit and require more maintenance, which can also drive up cost. New machines come with warranties that provide performance and cost of ownership guarantees. Most original equipment manufacturers (OEMs) have ROI spreadsheets that compare cost of ownership of new machinery to your existing equipment.
Item 6: Obsolescence
As discussed in my last BoxScore article, obsolescence is a challenging area. You may find that complete machinery replacement will be advantageous over upgrading obsolete existing machinery.
Item 7: Safety
Generally, new machines are safer. OEMs have done a good job of developing safety features to create a safer machine. Often, these safety features are not retrofittable on existing machinery. Safety is difficult to quantify in ROI. However, it is our legal and moral obligation to be committed to the safest operation for our employees.
The above items are the most common areas utilized to justify new machinery investments. Additional items to consider include increasing the trade-in value of existing machinery, advancing your company image to your customers and employees, exploring tax depreciation opportunities, and growing the value of your company to potential investors. While every new machinery evaluation is different, there is a correct answer. By reviewing this checklist and having in-depth discussions with your potential OEM suppliers, you will be able to arrive at the best decision.
This article was written by Jeff Pallini.
