Getting past ‘sticker shock’ to upgrade plant machinery
Financing allows the focus to shift to revenue growth and efficiency
From the standpoint of new technology and services, trade shows such as Fabtech and the upcoming IMTS event in Chicago can be quite overwhelming. There’s a lot to see and plenty of experts to speak with.
Though I visit these events mainly as an attendee instead of a host/ seller, I notice a lot of what happens at the trade shows doesn’t seem to change much.
When a manufacturer or prospective customer looks at a new piece of technology on the trade show floor, such as a multi-axis CNC lathe or a 5-axis machining centre, the first issue that seems to arise is ‘sticker shock’ (I used to keep smelling salts in my desk to revive a potential customer after delivering a quote).
I found when we were offering a high-end piece of equipment, we almost always tried to get our customer in front of the machine, so they could see the value of the equipment.
That’s the beauty of these shows and open houses. They allow buyers to at least get an idea or understanding of what’s being offered. When the machine can be seen and touched (and demonstrated under power) we found the price was a litter easier to digest.
The most successful clients I have are the ones investing in new technology. They are sharp, forward-thinking companies that recognize they have to upgrade to a multi-axis CNC lathe to more efficiently fill new orders. By adding one machine that can complete the part, they dramatically increase both their capacity and efficiency; and in turn, their bottom line.
Other clients purchase a 5-axis machining centre because the set-up time for machining a part on a 3-axis is killing their profitability and not allowing them to competitively quote. In either case, the business decision to upgrade is easy, particularly because the funds don’t have to come from their working capital or bank operating line.
Growing companies taking on more work have plenty of additional costs that can’t be financed, such as material, perishable tooling, or operators. These are areas where their cash is of its highest and best use.
Look at the monthly cost
Successful manufacturers financing the equipment look at the transaction and make the business decision based on monthly cost—not on overall equipment cost. Once the thinking moves into this type of evaluation, the sticker shock of buying a new machine is either entirely disarmed or at least significantly minimized.
Now the focus shifts to configuring the machine to maximize efficiency and profitability, as opposed to finding a machine that fits into a “budget.”
For instance, a manufacturer looking to upgrade an older 2-axis lathe may only purchase the model with live tools (milling capacity) even though the right machine for the job is the one with a sub-spindle or a y-axis (or both) because it adds $50,000 to $75,000 to the upfront purchase price.
However, if buying the right machine only works out to an additional $975 to $1,450 per month, it becomes very easy to measure the cost against the monthly savings in time and efficiency and in turn, justify the more functional machine.
The time and effort the customer may have spent trying to negotiate a better price from the seller can now be used in a collaborative manner to find the most efficient solution to manufacture the part. Long-term savings on minimizing manufacturing time will far exceed any type of negotiated discount from the retail or asking price.
Don’t forget the software
While visiting the shows and open houses I also spent a lot of time with the software and accessory suppliers. Investing in new machinery is the first step to improving both efficiency and profitability. But if the systems aren’t in place to support it, the profitably gain could be compromised.
You should avoid installing a new machine but continuing to use 10-year-old software or outdated measuring equipment. One customer of mine had invested in a new 5-axis machining centre but hadn’t upgraded their software.
The cycle time for the part was better, but still quite long. It wasn’t until a new software solution was implemented, at a cost of roughly $30,000, that the benefits of the new equipment were fully realized.
Getting financing for software isn’t as easy as financing a hard asset, although it is something we offer our customers. By financing the equipment, a manufacturer may still have some capital available to purchase the needed accessories, which might have been postponed if the equipment was being financed internally.
Ken Hurwitz is the Senior Account Manager with Blue Chip Leasing Corporation, an equipment finance company in Toronto. Ken has years of experience in the machine tool industry and now works to help all types of manufacturers either source or tap into their own capital to optimize their operations.
Contact Ken at (416) 614-5878 or via email at firstname.lastname@example.org
Learn more at www.bluechpleasing.com
This article is part of the Financial Management Success Centre.