Procuring Used Equipment

Used Equipment

 

  • ·        A buying firm is by no means restricted to the purchase of new capital equipment. Purchases of used machinery constitute an important percentage of total machinery sales. 

 

  • ·        Reasons for Purchasing Used Equipment – (1) The firm may consider buying or leasing used equipment for several reasons. First, the cost of used machinery is substantially less than that of new equipment. Analysis of payback or return on investment may well reveal that a piece of used equipment is a better buy than a new machine. Even if this is not the case, a firm’s financial position may dictate the purchase or lease of a lower-priced used machine. (2) used equipment frequently is more readily available than new equipment. In some situations, availability may override all other considerations. (3) A third and very common reason for the purchase or lease of used equipment is that used equipment may satisfy the purchasing firm’s need, in which case there is no point in acquiring new equipment. In cases in which operating requirements are not severe, a used machine in sound condition frequently provides economical service for many years. If equipment is needed for standby or peak-capacity operation or for use on a short-lived project, more often than not used equipment can satisfy the need very well. The used equipment must not affect the manufacturing process negatively.

 

  • ·        The Used Equipment Market – Used equipment becomes available for purchase for a number of legitimate reasons. When a firm buys a new machine, it frequently disposes of the old one. Although the old machine may be obsolete relative to the original owner’s needs, it is often completely adequate for the needs of many potential buyers. If significant changes are made in the previous owner’s product design or production process, it may be advantageous to the original owner to purchase or lease more specialized production equipment. Finally, some used equipment becomes available because the owner lost a contract or has discounts operations altogether. Whatever the reason, a great deal of used equipment is available and commonly is purchased from one of four sources: (1) used equipment dealers, (2) the owner, (3) brokers, and (4) auctions. In recent years, the majority of these purchases have been made from used equipment dealers who specialize in buying, overhauling, and market certain types of equipment. Dealers usually are located in large industrial areas, and as a rule, they periodically advertise the major equipment available.

 

  • o       Used Equipment Dealers – These dealers typically specialize in certain kinds of equipment and sell two types of machines: “reconditioned” machines and “rebuilt” machines. Generally, a reconditioned machine carries a minimal dealer warranty and sells for approximately 40 to 50 percent of the price of a similar new machine. The machine usually has been cleaned and painted, broken and severely worn parts have been replaced, and the machine has been tested under power. A rebuilt machine typically carries a more inclusive dealer warranty and sells for perhaps 50 to 70 percent of a new machine’s price. A rebuilt machine usually has been completely dismantled and built up from the base. All worn broken parts have been replaced. Wearing surfaces have been reground and realigned, the machine has been reassembled to hold original tolerances, and it has been tested under power.

 

  • o       Sale by Owner – Some owners prefer to sell their used equipment directly to the next user because they think they can realize a higher price than they would get by selling to a dealer. Some buying firms also prefer this arrangement because it permits them to see the machine in operation and learn something about its usage history before making the purchasing decision.

 

○       Brokers – A broker is an intermediately who brings buyers and sellers together but generally does not take title to the equipment. Brokers sometimes liquidate large segments of the equipment of a complete plant. Occasionally, an industrial supply house or a manufacturer’s agent will act as a broker for a good customer by helping the firm dispose of an odd piece of equipment which has a limited sales market.

 

○       Auctions – Auction sales represent still another source of used equipment. Several types of auction firms are in operation. Some actually function as traders, buying equipment and selling from their own inventory. More common, however, are firms which simply provide the auction sale service. Their commission is usually somewhat less than a broker’s commission. Generally, buying at auction is somewhat more risky than is using the other supply sources because auctioned machines usually carry no warranty and it rarely is possible to have a machine demonstrated. In some cases, however, machines can be purchased at auction via videotape or closed-circuit TV; this permits the buer to see the machine operating in a distant plant.

 

  • ·        Cautions in Purchasing Used Equipment – The age-old adage of caveat emptor-let the buyers beware-is particularly applicable when one is purchased used equipment. It may be difficult to determine the true condition of a used machine and estimate the type and length of service it will provide. For this reason, it is wise to have one supply professional specialize in used equipment. Moreover, it is virtually essential to enlist the cooperation of an experienced production or maintenance specialist in appraising used equipment. It is always sound practice to check the reputation of a used equipment supplier and to shop around, inspecting several machines before making a purchase. Whenever possible, a machine should be observed under power through a complete operating cycle. Finally, a prospective buyer should determine the age of a machine. If it is not available in the seller’s records, the age of a machine can be traced through the manufacturer by means of serial number identification. The combined knowledge of age and usage history is a key guide to the future performance of a used machine.

 

  • ·        In preparing a purchase order or contract for used capital equipment, one must take care to include all essential data. In addition to an adequate description of the machine, an order should specify the accessories included, warranty provisions, services to be performed before shipment, and financing as well as shipping arrangements. Generally, sellers do not provide service for used equipment after the purchase. All transportation, handling, installation, and start-up costs, as well as risk, usually are borne by the purchaser.

 

  • ·        Spares – When is the optimal time to obtain prices on spares and service agreements? Obviously, when competition is present! Wise supply professionals obtain a list of anticipated spare parts and service requirements from the prospective user of the equipment so that they can solicit prices for those items when soliciting the price of the equipment itself. Otherwise, excessive prices frequently become the norm when the need for the spare part or service arises.

 

  • ·        Estimating Acquisition Costs and the Total Cost of Ownership – After the desired operating and engineering objectives have been identified, the team should develop both acquisition cost and total cost of ownership (TCO) estimates. If the item to be purchased is a standard one, supply management will obtain estimates of the purchase price from its files or from potential suppliers. If customized or nonstandard equipment is to be purchased, it is desirable for supply management to obtain informal estimates from potential suppliers. These estimates are compared with the budget authorization and are input into the total cost of ownership analysis. If these analyses indicate that either cost is likely to be excessive, the team must reexamine the list of desired objectives and make appropriate adjustments. Ideally, those analyses and adjustments are made before the development of the appropriate specifications.