by Gregg Epstein, Perry Videx LLC
The seemingly endless requirement for sustained profitability combined with heightened awareness of regulatory  compliance and risk management, can make the divestment of surplus equipment a challenge. Maximizing reusable asset value, either through internal redeployment or external sale, is key for the investment recovery specialist. However, on the purchase side of the equation, there are many lingering concerns about the issues involved in locating, installing and utilizing surplus equipment. This article addresses seven common myths associated with used equipment.
Equipment no longer required for the manufacturing process generally has significant remaining value, particularly if able to be deployed elsewhere within the organization or sold to another company with a current need. Obviously, the capital expenditure required for surplus process equipment is lower than that for a piece of new equipment of similar functionality. That said, there are obvious concerns associated with the purchase, installation and utilization of “someone else’s trash” with the goal of making it your treasure. These concerns raise valid reasons to approach the purchase of surplus or used equipment with heightened awareness—but purchasers who allow them to shut down the consideration of such purchases entirely are not doing their companies’ bottom lines any favors.
In particular, seven myths are frequently cited as reasons not to buy used equipment. Like all good myths, they have some basis in fact. But if you examine them closely, you’re likely to find they melt away like ice on a hot sidewalk.
1. There is no guarantee that used equipment will work
2. There will be no documentation available
3. I won’t be able to buy spare parts
4. The equipment won’t meet current guidelines
5. I won’t save that much with used equipment
6. I won’t find exactly what I need
7. It’s too much hassle buying used equipment
Finding a reputable equipment dealer or partner is key. In
terms of gaining an overall comfort level in purchasing and installing someone else’s surplus equipment, relying upon the reputation of a trusted dealer specializing in your industry can put many of these myths comfortably back in the bottle, so to speak.
Myth ONE
There is no guarantee that used equipment will work. In the same way that a new piece of equipment could theoretically not work, the reality is that prior to purchase, you can fairly easily make sure that the surplus you are considering will be operating as advertised. Inspecting prior to buying— and arranging for shipping only upon approval— is the best way to confirm that you are purchasing what you intended and that the equipment is fully operational. In addition to a physical inspection of the equipment, a careful review of the service history and maintenance records are critical. Good documentation will provide a comfort level that the equipment has been in successful operation and cared for over the course of its use—while a lack of such documentation would obviously raise red flags, but should certainly be considered as a reason to lower the purchase price in negotiations. Generally, the dealer will provide a guarantee of serviceability that might not be fully equal to a new equipment warranty, but will provide plenty of assurance that the equipment you are purchasing will work as anticipated. Testing upon arrival (and prior to installation if possible) is also recommended and should be written into the purchase contract.
MythTWO
There will be no documentation available. Obviously, operation manuals are critical, and  operating procedures of the company disposing of the surplus equipment are generally available. In fact, the vast majority of the equipment you would consider for purchase will come with full and complete documentation, and you should expect that technical documentation and manuals will be a part of the sale. State these expectations clearly in your purchase offer, and review all documentation in detail as part of your inspection and verification process. But it should  be noted that even in situations where some or even all of this documentation is not available, there are many potential sources to help fill the gap, such as other sellers, dealers, original equipment manufacturers (OEMs) or third-party agencies. Your own company may already have an exact or similar piece of equipment. Material Safety Data Sheets (MSDS) are required to be available from manufacturers, and are generally available online. Internet searches by brand and model number may also reveal original drawings and manuals from the manufacturer’s archives or other sources. Additionally, an Internet search may help you find user groups or other companies that have purchased a similar piece of equipment and are willing to provide documentation and support.
MythTHREE
I won’t be able to buy spare parts. This is simply not true in almost all cases of commonly  manufactured equipment. In fact, parts are available for almost any used equipment. Spare parts for custom manufactured equipment can sometimes be an issue, yet even then, most items that are subject to wear will have a generally available replacement. Check your own inventory; sometimes, a twin machine exists that can be scavenged, or spare parts are already on your own shelves. If not available in-house, equipment dealers, OEMs and third-party suppliers would be the next place to check. Internet searches have dramatically increased the visibility of available parts worldwide. And if necessary, virtually any piece or part can be machined from scratch.
MythFOUR
The equipment won’t meet current guidelines. The reality is that most equipment manufactured within the last 15 or 20 years will most likely meet current standards. It may not be as efficient as something that was built this week, but safety and other operating guidelines will probably fall within specification. That said, some older equipment will not, so it is important to know your own company guidelines and determine what other regulations (such as OSHA, National Board, CE or DIN)may be effect. A reputable equipment dealer should be a good resource for securing this information.
MythFIVE
I won’t save that much with used equipment. Au contraire. The primary driver of used equipment purchases is the significant cost savings over functionally equivalent new equipment. The equipment’s condition, overall maintenance (backed up with accurate record keeping), generation of technology, location, and ease of moving and installation all impact its final resale value. A rule of thumb is to expect savings of 25 percent to 75 percent from the cost of new equipment. The closer to “new condition” that you are purchasing, the less you will save. But just as a new car loses 10 percent or more of its value when you drive it off the dealer’s lot, new equipment loses value once it has been titled to an organization. Although purchasing used equipment may take a bit more time and effort than buying new, there are many situations where paying just 20 percent to 75 percent of the cost of a new piece of equipment may make terrific sense. (And cents!)
MythSIX
I won’t find exactly what I need. Well, you may, or you may not. If cost savings are critical, then perhaps the specs could be somewhat flexible. Internet searches can reveal equipment available on a worldwide basis. The same piece of equipment used in your industry may go by another brand or name across industries and processes. It is possible that modifications to equipment can be performed by the equipment dealer or your in-house engineering staff, while still capturing significant cost savings over a new purchase. And interestingly, the reverse sometimes happens, where an older piece of equipment exactly meets your needs when no new equipment does. Likewise, surplus equipment that is available immediately may trump new equipment that requires a long lead time.
MythSEVEN
It’s too much hassle buying used equipment. Only you can determine what “too much hassle” means. But there are many resources available to help. Although buying used can entail more effort than buying new, the financial impact of a great deal that meets your needs can make the time well worthwhile. Importantly, by confirming and communicating a detailed specification, your network of used equipment suppliers can do much of the work for you, locating exactly what you want at a significant savings. Not universally, but generally, the more urgent your time demand and rigid your requirements for an exact piece of equipment, the less likely used equipment will be available within your timeframe or specs.
Conclusion:
Is the purchase of surplus equipment right for every circumstance? Obviously not. Yet many concerns associated with using surplus equipment in your manufacturing process are unfounded. Working
with a trusted equipment dealer or distributor (perhaps an associate member of the Investment Recovery Association!) is key to eliminating much of the concern and potential hassle of going it on your own. Buyer beware? Sure. But also be aware that savings up to 80 percent of the cost of new equipment are not uncommon. In this time of a new reality for most every operation, savings of this magnitude must be considered. And that’s no myth!

Reprinted from ASSET 2.0, the Investment Recovery Business Journal, Vol. 3, 2010

© The Investment Recovery Association

 

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