A closer look at buying machinery

Gregor Vahramian is president of VDF Vertical, a manufacturer, distributor, and installer of specialized vertical transportation equipment and elevator interiors, parts, and accessories.

Gregor Vahramian has been running VDF Vertical in Toronto for more than seven years. The business focuses on the design, manufacture, and installation of elevator interiors, as well as the service and refurbishment of elevators.

Although as a young man Vahramian worked summer jobs in various machine shops, before purchasing VDF Vertical he was an investment banker who specialized in companies providing infrastructure and infrastructure services.

It was at this time when he came across VDF Vertical, distressed and on the brink of bankruptcy. It also fell right into the industry he covered for the bank. This provided an opportunity to put into action much of the advice he was giving to his clients and take the leap of buying and turning it around.

I met Vahramian for the first time about five years ago when I arranged the first of what’s become several different equipment leases. But more importantly, it provided me with a front-row seat to watch him and his business grow and succeed.

I consider myself very lucky to function within an industry where I get exposure to some very sharp business minds, and this month Vahramian was kind enough to spare some time from his very busy schedule to participate in a Q&A about the process he goes through when arranging for new equipment.

CM: How do you decide that it’s time to add more equipment?
Vahramian: We are lucky to be in a relatively stable industry, and our focus on customer service has attracted key customers and larger, more complex projects, so we are constantly on the lookout for ways to scale, improve our quality, and reduce costs.

Adding and upgrading equipment, therefore, is partly offensive and partly defensive. As a growing company, we require the capacity to support our customers, but technology also is changing rapidly, so if we do not invest, we risk putting ourselves at a disadvantage. If not today then in the future for sure.

We see the value in the manufacturing chain evolving, with more emphasis placed on design and technology compared to skilled-trade “artisanal” activities. There is obviously a right balance between constantly upgrading and spending and obtaining real value and being honest about the needs.

With that said, it seems any time we obtain new equipment we ask, “Why didn’t we do this earlier?” Over the past year we have added several pieces of equipment and other, smaller items. Most are gently used, which has allowed us to get more value for our money than new.

CM: How do you prepare to go shopping?
Vahramian: Oftentimes we don’t know what we are looking for until either we see it or consider how a process is undertaken. Some of the research comes from industry partners, tradeshows, and good old Google to start.

Our business is a hybrid of several industries, including machining, metal fabrication, woodworking, and welding, and we may repurpose elements of these to fit our needs. To date we have done a reasonably good job of evaluating scope, size, and operating parameters that we need for our applications.

That tends to get us 50 to 75 per cent of the way there to a decision. At that point we are in the market, obtaining quotes, comparing specs, and making decisions.

CM: Other than price, what factors into your decision?
Vahramian: There is no doubt there are certain name brands you want in the shop, but there also are items you are less concerned about from a manufacturer standpoint.

The cost of upgrading equipment can be much less expensive when brands are not taken into account, provided quality, reliability, and serviceability standards are met. We look at additions on a case-by-case basis.

In this market, and with so many new equipment entrants, we are seeing a wide range of options for us. For example, we purchased an offshore brand of laser table. In addition to the competitive price, the dealer has an excellent service team in the GTA, which has been beneficial for startup and ongoing technical support.

CM: How do you decide on financing?
Vahramian: We have several potential sources for funds, including our commercial bank and other non-bank lenders.

The bank does a great job with certain support like lines of credit, cash management, EFT, and cutting cheques. However, the bank has a much narrower scope of what they can finance, and anything outside of that can be difficult. The bank does a good job provided you are working within their system or the way they want you to work.

We work with our leasing partners to support unique asset classes when the banks are not able to react or respond quickly. When you are a manufacturing company, an important criterion is speed and ease of execution. We have found that the independent lease financing companies are able to finance a wider range of products and turn around approvals and funding faster when we find opportunistic and “quick turnaround” purchases.

CM: How do you calculate ROI and whether a purchase was a good decision?
Vahramian: We are a little different than the rest of the world because we expect the payback will be less than a year.

Most of the time we are catching up because we have landed more business and require the capacity, so every machine we add needs to have an immediate impact.

We mainly try to keep our ROI calculations simple, with a quick payback based on labour/materials saved. However, we also try to factor in the indirect costs and trade-offs like new training; overhead; opportunity costs; and benefits such as improved quality, institutional knowledge, and client impressions. This helps keep us honest with ourselves. Although, we often find value and new applications once a machine shows up and we start playing with our new toy!

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