Equipment Replacement Justification 3

[redoak52]

Can someone give me some advice on what economic analysis to use to justify replacing a Cat loader in our facility. So far we have not lost any production due to the loader being out of service only because our local Cat dealer has been able to get a rental unit. The last replacement was a backhoe which was marginal because their rental loader was rented out. The existing loader is 15 years old with 22850 hrs of service. We have spent $20,000 since Jan to keep this loader running. A new loader is $126500. This loader is usually only run at night and has a bad habit of breaking down at midnight on Friday.

 

[PSE]

After 15 years, it is likely that the accounting department has fully depreciated this piece of equipment which should make replacement justification easier. You could take a look at scrap/sale value and if known, annual maintenance & service expenses. Assuming regular service is followed, you could project the cost over the next 12-18 months. You can also assign a $ value to lost revenue from down time and/or rental equipment expense.

For a new machine, try to determine if there are gains in efficiency or capacity. There should be at least gains in reliability. Your time for "break even" is basically when your new equipment cost = the accumulated expenses of the existing machine.

Regards

 

[sbi]

Sounds like a foundry machine?
Have you talked to your cat & any other heavy equip. dealer localy in the possibillty of buying onr to the rental machines, They usually sdell them off after 2 years with full new machine warrantee, at a reduced price, like 25 to 30% off

Being a small non-feruos shop we run a Case 1845 Skid loader for around 5 years thern trade it off for a new on we average 2000 hr plus a year, the last one we bought had ben sitting ona dealers lot for nine months and they were very happy to discount it to us
Bill l

SBI
Central Ne.,USA

 

[Hagedoorn]

You can use the "Bathtub" curve.
That is the investments(buying new equipment and maintanance) through the time.
On the left, year 1, you buy the equipment (high investmenst. then in the years after that the investment will drop. till you reach a time period that your investment will be stable (horizontal). after that stable period the investments will rise thru more breakdowns in your equipment. now you can see when it it is the best moment to replace the pease of equipment.

on this website you see an example of the bathtub curve in failure management.

http://www.itl.nist.gov/div898/handbook/apr/section1/apr124.htm

but also remember that a new piece of equipment also can make things better and with a higher efficiency.

I hope that this helps you also a bit.



Raymond Hagedoorn
Cost Engineer

 

[griffengm]

Redoak,
We have used a mix of factors with results varying according to the wind of cash flow. I think the first step should be to discuss the situation with your CFO/accountant. Learn all you can about what parameters the money guys will use to judge your request and structure the request accordingly. Usually time well spent.
Many companies have seasonal cash flow cycles. Find out what yours is. You might be better to limp for a few more months and present the request when the bank account is a bit more flush.
If you are servicing in-house, you should have records of time worked by maint. staff as well as time out of service. If the rental cost is not already in the $20k, it should be.
Hope this helps.

Griffy