Purchasing, Redeploying and Selling Capital Machinery
By Howard M. Newman, Vice President of Loeb
As published in Global Cosmetics Manufacturing, March 2004
Many people have heard horror stories about companies purchasing used machinery from an unreliable source and paying dearly for it.
For example, just the other day, the author of this article was informed about a company that purchased a machine without having viewed it first, agreeing 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 they learned that the individual they purchased the machine from was out of business and had filed personal bankruptcy.
Upon further investigation, they discovered that the machine in discussion was in fact sold almost a year before they 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 one's self from any type of complication, large or small, when purchasing used machinery still needs to be addressed.
Here are some specific questions a 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. There are some brokers that are now 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.
- Enquire 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, but on occasions, problems do arise. It cannot hurt to talk to a customer that had a problem and see how the company that one is considering purchasing from dealt with it.
- 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 been with their current bank? 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 one is dealing with will have the money available when the item is returned.
- Does the dealer offer a warranty programme to ensure that the machinery being purchased is not going to have any mechanical or electrical issues once it is in full production? It is often the case that the more reputable companies are willing to work with customers to assure their satisfaction and future business.
- Does the dealer stock most of its machines or does it broker them? This will establish whether one is dealing with the middleman or the company in charge. When dealing with a broker, the purchase price may in fact be higher, to cover the brokers' commissions.
Most of these questions should be answered on the dealer's website, but if not, it will be necessary to ask them, as 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 sign, as these are standard questions, which should easily and willingly be addressed by any reputable organisation.
Redeploying or Selling Idle Machinery
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 their machinery, this important process can be made to be efficient, quick and profitable by taking 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, thus assuring 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, allowing them to do the best job possible.
- Remember the spares – As the price of original equipment manufacturer spare parts keeps spiralling upward, any spare parts one is able to provide will be a benefit to buyers. Providing spare parts also shows new customers how the machinery was maintained and which components were areas of concern.