In today’s world, the challenge for any manufacturer is to remain as efficient as possible. Competition isn’t just from the shop around the corner. These days it’s the shop on the other side of the globe. There’s constant pressure to improve internal processes, find employees with the right mindset and skill set, and of course, install the latest technology.
All of these tasks can be challenging for various reasons but as someone who’s had a lot of experience trying to sell new equipment first-hand—and currently has a front row seat while some of the best in the business continue to do the same thing—selling technology is difficult.
New machinery is expensive and so are the accessories required to run them efficiently. Whether it’s software, measuring systems, or even just additional tooling, it’s tougher for business owners to invest.
When I see a purchase of a new two-axis lathe when a multi-axis turning centre with live tools and sub-spindle is what’s really needed; or a new 3-axis vertical machining centre to handle an increase in volume from one particular job when a machine with 5-axis capability is what should be purchased to handle the current and future work, it reminds me of an interview my grandfather, Harold Gross, who was the chairman of Gross Machinery Group, gave Canadian Machinery and Metalworking (now named Canadian Metalworking) in the October 1976.
The Canadian market was a tough one in the mid 1970s for myriad reasons. By Autumn of 1976, the recession was coming to an end and the Canadian market was starting to show signs of life. Gross was already a well established seller of conventional machinery and equipment and by 1976 had been in business for more than 40 years.
However, they were now beginning to focus on selling numerically controlled (NC) equipment, the first generation of machines that were computer controlled. The typical job shops of that era were only learning about these types of machines and were hesitant to install them in their plants because of cost, reliability, and their concerns finished parts could not be made of the same quality that their best toolmakers could produce.
The article discussed how manufactures were investing in expensive machines with NC controls to fight the economic squeeze in their battle to stay competitive. His overall point was installing the newest technology, even during soft markets, keeps industry moving and manufacturers efficient; which in turn, leads to profitability.
“It was always a myth that you needed big production runs to justify NC equipment. Really it’s the reverse,” he said. “Of course, the very big operators—automotive, farm equipment, and aircraft manufactures—were our first customers in this field. That was simply because they understood the advantages and could afford to exploit them. Actually, it’s the little guy doing small runs and hoping for repeat business who reaps the real benefits from these machines.”
The article goes on to discuss the advantages of NC equipment, such as substantial reduction in set-up time, fewer special jigs or fixtures required, and most importantly, the machines requiring fewer people. That was a huge advantage since there was a shortage of skilled workers.
He we are 40 years later and those reasons are as true today as they were when that interview was published the first time—amazing when you think about it. The only difference is today, a standard 2-axis CNC lathe sitting beside a 3-axis vertical machining centre is commonplace in pretty much every shop. But what should be there are multi-axis machines and for the most part, it’s cost holding back the typical business owner.
I’m now five years into a career of leasing machinery and equipment, and have secured financing for literally hundreds of clients. I’ve seen just about all of them identify technology they couldn’t afford to buy outright, install it in their shop, and grow their business to the point where they’ve come back for more machines.
Here’s a typical example—call it “Company A.” They were the first client I signed back in 2010. I had an established relationship with the owner from my days as a seller. Our company put the first CNC lathe on their floor and I watched them build a business from literally one machine.
As soon as I started in equipment finance they approached me to finance a small band saw—only about $35,000. We figured why lay out money from their working capital when I could easily handle the transaction. They were in the midst of large growth phase and had much better uses for their cash.
Two years later, their sales had doubled and I secured financing for a large multi-axis CNC lathe, at that time the largest deal I had put on our books. Since that machine has been installed, their sales have doubled once again.
Another client of mine; let’s call them “Company B”, was another deal I signed in 2010. It was for a used CNC lathe which was 15 years old at that time. The machine cost was about $40,000. Within six months they were back, this time for a used plasma machine for about $70,000. They found a great deal on a used machine (a plant was closing) so for us, financing it was a no brainer.
About two years after that, in early 2012, their sales had tripled from where they were in 2010 and we easily secured financing for their first band new CNC lathe from what I would consider one of the finest manufacturers in the world.
We’re now in the fall of 2014, about 2.5 years from that last deal, and they just completed their most successful year to date. Sales are up to five times from what they were in 2010 and I now have them approved for a brand new large CNC multi-axis machine.
A lot has changed in 40 years, without question. Technology is vastly different and the market for manufacturers is far more competitive but sometimes, it’s a good idea to take a moment and reflect back on where we came from. There are some lessons learned which will help point us in the direction we need to go in.
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 [email protected]. Learn more at www.bluechipleasing.com
This article is part of the Financial Management Success Centre.