Selecting the right equipment to add to your fleet for construction or maintenance operations can seem daunting, but it’s an important task to undertake. If the equipment isn’t replaced when its service life is over or when new technology demonstrates better efficiencies, it can negatively affect your ability to get the job done and needlessly eat into capital and maintenance budgets.
We’ve prepared this guide to help you navigate the road to choosing new or replacement equipment. We devote the bulk of our time here to exploring the key questions and concepts you need to consider, before finishing with a look at why partnering with the right supplier really matters.
A major part of any equipment purchase decision is the price—but the capital acquisition cost is only one factor, in combination with ownership, operation, and maintenance costs. Although many organizations only focus on capital costs, it makes more and more sense to consider a lifecycle approach with your cost analysis.
In addition to the base price of the machine itself, other capital costs might include:
Make sure you read and carefully explore whether a proposal or quote covers everything you are expecting to get, and that nothing is back-ended that you were unaware of. Assumptions are dangerous and can lead to issues that may be difficult to resolve after delivery.
These are the costs that you incur on an annual basis even if you’re not actively using your equipment. They are made up of expenditures on items like storage, insurance, licensing, and interest on finance payments.
These include any costs associated with the ongoing operation of the equipment, which are typically the price of fuel and operator time. These expenses are only accrued when the machine is actually being operated and will vary depending on use.
The third type of costs you need to factor into your decision-making processes are those associated with ongoing maintenance. These are crucial, because regardless of the purchase price you pay at the outset, regular upkeep and repair is where you will find yourself devoting a substantial portion of your budget over your machine’s lifetime.
Maintenance costs include things such as:
Remember that maintenance costs tend to rise as machines age. Staying up-to-date with routine inspections and scheduled maintenance plays a critical role in helping your equipment last longer and perform better.
All of these factors combined need to be considered against the expected lifecycle of the machine, and must be compared against viable alternatives. A higher capital cost machine may in fact cost less to operate and last much longer, which is why a total lifecycle analysis must be conducted.
Keep in mind that, if you are involved with procurement in the public sector, an analysis and purchase process that is based solely on machine specs and a purchase price can be erroneous to expected lifetime costs. Instead, craft a procedure in which both the supplier and the buyer request a quoted and locked-in price, with discussion and evaluation possible to examine a total lifecycle ownership decision.
Depending on your needs, support might include parts, service, and possible loaners. You should ensure that both parts and service help will be available and convenient for any required maintenance or repairs in the future. Be sure to find out whether the support offered is local—can the provider fix your machine onsite in a reasonable timeframe, or will your machinery need to be shipped away while it’s being worked on?
It’s important to take a look at the big picture from 30,000 feet above when considering how a new piece of equipment will fit into your business over the short and long term. Is the equipment intended to fulfill your current needs or anticipate future ones? How will the new machinery impact your labour costs and skills available? Even if a new machine requires operator training or even new or additional personnel, it could boost your productivity and reduce expenditures in the long run.
Another factor to think about is the significance of the machinery to your business. Your answers to these questions will help determine the best option for acquiring the equipment:
Based on your responses, you can decide whether it makes the most sense to consider new or used. For example, if you really can’t afford downtime, consider new or rented equipment so that you don’t have to worry about the responsibility of maintenance or repairs. On the other hand, if the piece of machinery is absolutely critical to your company on a long term basis, it may make the most sense to consider ownership of a new unit rather than used—after all, the best hour a machine will ever have is its first.
There are a number of financial factors to be considered when acquiring new machinery. One of the first things you need to reflect on is whether you should buy or rent.
One of the biggest challenges with buying equipment can be the initial capital outlay required, which is significantly higher than it would be with leasing or renting. This where financing and leasing may be available either through the seller or third party financing companies. Interest, taxation, and cash flow considerations should all be examined when structuring a purchase. Remember that the initial purchase cost is only about 50 percent of its lifecycle costs!
When it comes to buying, there’s one more question you need to consider—will you buy new or used?
Here are some points to consider for each option:
New | Used | |
Pros | · Easily keep pace with the most current industry developments and technological changes.
· Maximize productivity and keep your competitive edge. · The resale or trade value will be higher than for a used machine. · Gives a strong statement to the market and competitors that you are here for the long haul. · A manufacturers’ warranty is usually available. · Financing is more readily available for new equipment. |
· Buying used is a good way to save money, especially if it’s gently used and well maintained.
· Used machines are more likely to be time-tested solutions that have a proven track record of success. · Some suppliers guarantee a thorough inspection and product support for their used equipment. · You may know the used piece well if you buy from someone you know. |
Cons | · There are higher initial costs to buy new equipment.
· New machinery often requires more training than older, familiar equipment. · New equipment depreciates in value faster after the initial purchase. · New equipment may require outside support for upkeep and maintenance. |
· Support isn’t always included when you buy second-hand.
· Older equipment may be outdated and reduce your productivity. · The equipment may not be in good shape—make sure to work with a reputable supplier to avoid any surprises. · Financing is more difficult for used equipment. |
Leasing is a specialised discussion in itself when acquisition is desired:
A challenge you might encounter is that interest and insurance rates for leases tend to be higher. If you need to return the equipment and end your lease early, the financial penalties associated with that can also be stiff, and should be fully understood ahead of time.
Renting can offer a number of advantages depending on the type of equipment you need and your intended use:
One thing to consider is that rental fees over a long term can add up fast, so be sure to choose the right rates and rental period from the outset. If, for example, you need a piece of equipment for three weeks, it might make more sense to pay a monthly fee rather than daily rental fees. Depending on how long you’re going to be using the equipment (for the duration of a season, for example), a short term lease package might also be suitable.
You may find that you will rent for longer than you thought, so consider an upfront purchase option to allow you to acquire the unit for long-term ownership or even to secure your equity so you can buy and resell it yourself.
Remember that rental rates are often twice as much as what ownership costs would be, so you may not expect to make money on the rental. However, it is a more productive means to evaluate a unit or get a specific job done.
Ultimately, your method of acquisition will likely blend a variety of approaches for different equipment considered. Depending on your company’s needs, you might own some core equipment, lease a piece or two that you only need for a couple of seasons or a job, and rent more specialized pieces on an as-needed basis. You can work with your suppliers to determine the arrangement that’s right for you.
You’ll likely need to sell or trade in your equipment at some point. You might let go of a machine when a project is over and the equipment is no longer needed, when more specialized equipment is required, or when your current model is old and you want the reliability and features of a newer model.
The main factors that affect resale value are the equipment’s brand, condition, and buyer demand.
When you’re looking to replace your equipment, let your supplier know—they might be able to help you sell it.
If you find yourself conflicted between time-tested machinery and innovative, emerging solutions when choosing equipment, you’re not alone. Are you an early-adopter, or a latecomer?
In this case, your decision will be a personal one, based on factors like:
If you’re not ready to try a completely new piece of equipment but still want to take advantage of advances in technology, there are options available. Many traditional machines are now able to incorporate innovative optional components. For example, some machines have added the option of automation, like GPS control, so you can make the shift from analog preparation to digital accuracy. Some of these can be added later, but only if considered up front—so ask about add-ons early in the process.
Consider things like:
A good supplier should feel more like a conscientious equipment consultant, rather than a sales organization with one end goal. Do they fully understand your needs and offer suggestions? Are they respectful and capable? Are they assisting you, or pushing you? Are they going to be there for you whenever you need them, for whatever cause?
Ultimately, a supplier should provide all the information you need to make an informed selection—whether that means buying from them or not. They should be able to provide useful insights and answers to any questions you may have about the equipment, parts, service, and maintenance, making the decision-making process easy and hassle-free.
Choosing equipment is a big commitment. Take the time to research your options and ask important questions to ensure you get the most out of your equipment throughout its entire lifecycle.
Amaco is Ontario’s heavy equipment specialist and has helped municipalities, contractors, and owner-operators across the province find the right machine solutions for them. Contact us today to discuss your needs!
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