10 Questions to Ask When Purchasing Machinery
By Howard M. Newman, Vice President of Loeb
As published in Contract Packaging Magazine, May 2005
You can protect your company from getting 'take' by learning about the dealer's history and key relationships.
Many people have heard horror stories about companies purchasing used machinery from an unreliable source and paying dearly for it.
In one recent example, a company purchased a machine without having viewed it first. It agreed to pay half the cost up front and the remaining half upon delivery. The customer issued a purchase order, submitted initial payment and began to arrange the transportation for the machine when it learned that the individual it purchased the machine from had gone out of business and had filed personal bankruptcy.
What's worse, this company discovered that the machine had been sold almost a year before it had even expressed interest in it.
Admittedly, most problems that can arise when dealing with brokers, small shops, or finders are not this drastic. However, the question of how to protect yourself from any type of complication, large or small, when purchasing used machinery still needs to be addressed.
Here are some specific questions a contract packaging company can ask to ensure that it is dealing with a reputable used machinery company and help to avoid some foreseeable problems:
- Has the dealer sold machinery under different names in the past? This is a big warning flag. Some brokers are working under their fourth, fifth, and even sixth company names.
- Is the dealer willing to provide references and contact information? This should be a standard rule of thumb for any salesperson. It is important to check the references.
- Inquire about how the dealer has handled problems in the past. Can it guarantee everything? In every business, successful companies work to avoid any foreseeable problems. On occasions, problems do arise. It cannot hurt to talk to a customer that had a problem and see how the dealer resolved it before you make the equipment investment.
- Does the dealer have mechanics and electricians to test the machinery before it is shipped? This is a way of guaranteeing that the machinery is in good working order.
- Does the dealer have a reconditioning facility where the machinery can be seen under power before it is purchased? This is also a way to assure the quality of the machine one is looking to buy.
- How long has the dealer been at their current location, and does it have a warehouse? This may appear a very basic question, but will help to determine the company's stability, commitment to the industry, and financial strength.
- Does the dealer have a documented return policy, so that, if one is not 100% satisfied with the item purchased, it may be returned?
- How long has the dealer had a relationship with its current financial institution? Ask for a contact to speak to for a reference. Being able to return a machine is great, but it only works if one is sure that the person you are dealing with will have the money available when the item is returned.
- Does the dealer offer a warranty program to ensure that the machinery being purchased is not going to have any mechanical or electrical issues once it is in full production? Often the more reputable companies are willing to work with customers to assure their satisfaction and, consequently their future business.
- Does the dealer stock most of its machines or does it broker them? This will establish whether one is dealing with a middleman or the company in charge. When dealing with a broker or the owner of the equipment, you may have to pay a higher purchase price to cover the broker's commissions. Most of these questions should be answered on the dealer's website. If not, you will have to ask the dealer—some of the answers may come as a surprise.
Moreover, if the dealer is reluctant to answer any of these questions, this can be taken as a warning; these are standard questions that a reputable dealer should be easily and willingly able to address.
What to discover when redeploying or selling idle machinery
For many contract packagers, redeploying or selling idle assets is a top priority. Although it may not be every company's number one priority, when the time comes to upgrade or transfer machinery, this important process can be made to be efficient, quick, and profitable. Success requires the following preliminary steps:
- Stop the scavenger hunts. A factory's maintenance and engineering teams focus on keeping a facility running. At times, this means 'raiding' idle machinery for spare parts to repair other units. These raids, however, damage the resale process, raising questions with buyers over issues such as missing parts that customers might not have noticed. Selling machinery that is still installed is critical; it prevents the scavenging that makes controllers, drives, parts, and resale value from being lost.
- More time equals more money. By giving a dealer or asset management team plenty of time to do their job, more interest can be generated in an item. This assures a competitive sale price. So, as soon as the decision is made to either redeploy or to sell machinery, it is wise to let the machinery dealer or asset management partner know. This allows the dealer or partner to do the best job possible.
- Remember the spares. As the price of original equipment manufacturer spare parts keeps spiraling upward, any spare parts you can provide will be a benefit to the buyer. Providing spare parts also shows new customers how the machinery was maintained and which components presented areas of concern.