The used equipment market
A buyer is by no means restricted to the procurement of new capital equipment. Procurement of used equipment, in fact, constitutes an important percentage of total equipment sales.
A buyer may consider buying used equipment for several reasons:
1. The cost of used equipment is substantially less than that of new equipment. Analysis of payback or return on investment may well reveal that a piece of used equipment is a better buy than new equipment. Even if this is not the case, a firm’s financial position may dictate the procurement of lowerpriced option.
2. Used equipment is frequently more quickly available than new equipment. In some situations, availability may override all other considerations.
3. Used equipment adequately satisfies the buying firm’s need, in which case there is no point in buying new equipment. In cases where operating requirements are not severe, used equipment in sound operating condition frequently provides economical service for many years. In the event that equipment is needed for standby or peak-capacity operation, or for use on a short-lived project, more often than not used equipment can satisfy the need adequately.
A great deal of used equipment is available and can be commonly procured from used equipment dealers, directly from the owner, brokers or auctions. Used equipment may be sold in as-seen condition or rebuilt or reconditioned. With rebuilt used equipment, the equipment will usually have been stripped down and built up again from the base. Worn or broken parts will have been replaced and worn surfaces reground and realigned to meet the original tolerances. The rebuilt equipment will also have been thoroughly tested and will carry a limited warranty. Reconditioned equipment will not have been as thoroughly overhauled as rebuilt equipment. They will, nevertheless, have been cleaned and had all broken or worn parts replaced and been repainted to look like new. However, the guarantee or warranty may be less inclusive than for rebuilt equipment.
So, when does it make more sense to buy new capital equipment? In addition, when does it make more sense to buy used equipment? Consolidating some of the points discussed earlier, various aspects of new and used equipment are compared in Table 5.1. Their respective advantages and disadvantages are summarised in Table 5.2. Finally, Table 5.3 sets out some of the key criteria when deciding whether to buy new or used equipment.
|New equipment||Used equipment|
|1. Low maintenance cost. Warranty period from manufacturer.||1. High maintenance cost. Short warranty period or warranty period expired.|
|2. Up-to-date technology.||2. Could be outdated technology.|
|3. Straightforward purchasing. Require fewer tests and investigations.||3. Thorough investigations and tests are required to ensure the functionality and reliability.|
|4. Availability of spare parts.||4. May not get all the spare parts required.|
Table 5.1 Factors to consider when buying new and used equipment
|1. Lower purchase cost. Faster return on investment.||1. Shorter life span.|
|2. Shorter lead time to acquire.||2. Shorter warranty period.|
|3. Eliminate the teething problems associated with new equipment.||3. Lower productivity.|
|4. Maintenance record could be available for inspection and reference.||4. Need thorough investigation of maintenance history. Higher maintenance cost.|
Table 5.2 Advantages and disadvantages of used equipment
|New equipment should be considered||Used equipment should be considered|
|1. When longer warranty period is required.||1. For usage in pilot run or test run.|
|2. When efficiency is the priority.||2. When budget is the constraint.|
|3. When longer life is expected.||3. For short term usage.|
|4. When less maintenance is expected.||4. When maintenance is anticipated.|
|5. When spare parts are not available.||5. When spare parts are available.|
|6. When tax exemption or government grant is available.||6. When the government does not offer incentives.|
|7. When used equipment available are outdated in technology.||7. When the used equipment could be upgraded to the latest technology.|
Table 5.3 Criteria for decisions on buying new or used equipment
|Please read about ‘Capital Equipment’ on pages 331 – 348 in Chapter 14 from your textbook Procurement Principles and Management, 10th edn, England: Prentice-Hall, Pearson Education Limited by Baily, P, Farmer, D, Crocker, B, Jessop, D and Jones, D (2008).|
|Question to activity 5.2
||Suggested answer to activity 5.2