Lenders offer capital for smaller purchases, too

Investing in other areas, beyond just new equipment, definitely can have a positive impact on a manufacturer’s business if implemented correctly.

While there is no doubt that many of the most successful clients I have are the ones investing in new machining technology, companies that are smart with their use of funds in all areas are the ones that will truly succeed.

One such company that I deal with is a sharp, forward-thinking manufacturer that recognized its need to upgrade to a multi-axis CNC lathe because it has work that requires both turning and milling. By adding one machine that can complete the part in one setup, it dramatically increased the shop’s capacity and efficiency, and, in turn, its bottom line.

In this case the business decision to upgrade was easy because the funds did not have to come from working capital or its bank operating line.

Growing companies, on the other hand, constantly take on more and more work, adding a significant amount of costs that can’t be financed, like material, consumable tooling, and labour.

And for product development, yet another cost which cannot be financed, on-hand cash is of highest value.

But for other investments, using a lender’s money could have a big an impact on the bottom line. Here are a few of them:

1. Turnkey systems

Equipment sellers typically sell stand-alone machines, but, just getting another machine on the floor doesn’t always eliminate a bottleneck or provide immediate additional capacity. Manufacturers need to learn how to optimize equipment and, in many cases, will require the expertise of the equipment seller to get there.

This means they will need to purchase a service known within the industry as a turnkey. The term turnkey refers to something that is ready for immediate use, generally used in the sale or supply of goods or services. The word is used as a metaphor to illustrate to the customer that, upon receiving the product, they simply need to turn on the “ignition” to make it operational.

Essentially the customer is purchasing a complete workcell capable of running finished parts, including design and programming of the part, fixturing, and sometimes even automation systems along with the machine.

Now when you consider the scope of work required to supply such a service, and I can tell you from first-hand experience it is considerable, the associated costs also are considerable. However, when measured against the time, costs, and necessary expertise required to get a new machine running at optimal efficiency, it can make a lot of financial sense to purchase a turnkey, particularly when it can be financed along with the machine.

2. Software

Having the newest technology on your floor is great, but if systems aren’t in place to support it, the productivity gains could be somewhat compromised. The best example I have come across recently was when a manufacturer installed a new machine but continued to use 10-year-old software.

I recently was talking to a product specialist working for a large software supplier about this, and he put it best when he said, “There are three pieces that allows a manufacturer to be most efficient: the machine, the tooling, and the software. Your ability to be productive will only be as strong as the weakest link.”

We then talked about a few mutual customers of ours who had recently upgraded and leased some new computer-aided design (CAD) software.

Case 1: A machine shop that is a Tier 3 supplier to the aerospace industry just bought a new 5-axis machining centre but had not upgraded its software system in years. The new machine improved the cycle time but not as dramatically as the shop had anticipated. It wasn’t until a new software system was implemented, at a cost of roughly $12,000, that the benefits of the new equipment were fully realized. In this case the cycle time for a part was reduced from 2.5 hours to 25 minutes.

Case 2: A machine shop working in the telecom industry recently installed a 5-axis machine to produce numerous part generations. These parts took eight hours to program and then had a cycle time of 12 hours. The company’s investment in new CAD software was approximately $30,000 but it resulted in a reduction in programming time to only three hours with an eventual cycle time of five hours.

The savings for this shop was so dramatic that return on investment for the machine, which was originally pegged at 24 months, become less than one year.

In each case the software was financed over a 36-month term, which is an industry standard for software, as opposed to five years for equipment. Most importantly, it did not have any impact on the shop’s cash flow.

3. Accessories, repairs, rebuilds

In the past year, several of my customers have landed new contracts, but instead of investing in new equipment, which didn’t make sense based on the size and duration of the contracts, they wanted to use equipment on the floor. However, that equipment was not configured properly for the new job or needed significant repairs.

In one of these cases the manufacturer had landed enough work for the two electrical discharge machining systems he had on his floor, but only one of the machines was functional and the other required a significant amount of work. The repair work was going to cost more than $45,000, an amount that the owner was not comfortable pulling from his working capital.

Because the machine—when repaired and functioning well—would easily be more valuable than the repair cost, all we had to do was use the machine itself as collateral and arrange for a lease to pay for the repairs.

To remain competitive on the world stage, investing in new technology is very important. But it is just as important to ensure the new technology is being used as efficiently as possible. Sometimes a small, additional investment will be the one that makes all the difference.

And it’s good to know that when additional funds are required for smaller investments, they can be sourced just like for equipment purchases.

Ken Hurwitz is senior account manager, Blue Chip Leasing Corp., 416-614-5878, www.bluechipleasing.com.