6 Best Practices for Equipment Acquisition

6 Best Practices for Equipment Acquisition

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Say you’ve kicked the tires on a few new machines and think you're ready to buy. Three equipment management experts share some of their best practices when acquiring equipment.

1) Examine the financial impact of all your equipment acquisition options

Mike Vorster believes there has been a lot of innovation in the way equipment is acquired, whether it is owned, leased or rented. Equipment managers need to evaluate all their options. 

“The way you access your machines is dependent on the risks you are prepared to take,” says Vorster, the David H. Burrows Professor Emeritus at Virginia Tech where he has taught in the Construction Engineering and Management Program since 1986.

At Superior Construction, buying construction equipment is project-based, and Ernest Stephens has found leasing works well for a majority of their projects.

“Three years ago, we didn’t lease,” says Stephens, corporate equipment manager for the heavy-construction contractor with operations in the Midwest and Southeast. “Now, we lease about 90% of our construction equipment. Leasing maximizes working capital and then allows the company to turn equipment in at the end of the lease.” 

To reduce risk, Stephens advises municipal sewer and water utilities and contractors to “know the endgame for that piece of equipment before you buy it.” This means evaluating not only the outlook for machine usage and future work, but also the technology. If the technology could quickly become out of date, it could negatively impact the value of the machine.

“I am much more cognizant of the financial impact purchasing has on the company than I was three years ago,” says Adam Williams, director of equipment and support for MCG Civil, a company that oversees several civil construction companies across North America. He is responsible for a fleet of 500 heavy-construction assets, as well as an additional 1,000 trucks and light construction assets. MCG Civil’s projects typically run four to six months. Williams acquires construction equipment primarily through rental-purchase options and uses purchasing as a tax strategy at the end of the year.

“Rental-purchase helps us build equity in the machine before we own. I can negotiate a better finance package at the end of the year on multiple machines,” Williams says.

2) Remove emotions from your decision

“A common mistake when buying equipment is being emotional,” Williams says.

To avoid this, he uses software to track telematics information and maintenance costs so he can calculate true owning and operating costs.

“A new machine with an expensive price tag may cost less per hour than an older machine that is constantly breaking down,” he says.

Williams believes that making the right purchase decision is a balancing act between finding the right tool for the job, an acceptable financial impact and the support of the dealer.

“A cheaper machine may not get the dealer support or hold its value,” Williams says.

3) Work with your partners

“What has really helped us is having real conversations with our partners at the beginning, before you even have work,” Stephens says.

He believes that by sharing pain points with dealers and manufacturers, utilities and contractors can improve service and support.

“All equipment dealers aren’t created equal, but with good communication you can get them there,” Stephens says.

By consolidating equipment operations under one entity, Superior Construction was also able to better leverage its buying power with manufacturers and dealers.

4) Involve others in the decision

Vorster believes it’s important for equipment managers to involve finance, maintenance and operations in buying decisions.

“We look at operations’ needs and supply them with what is most cost-effective at the time,” Stephens says. “We will take their input, especially on specialty equipment.”

He recommends doing the homework on new technology and requesting a demo before purchase.

Williams also solicits feedback from operations and maintenance and works closely with finance.

5) Take a long-term view on capital expenditures

As much as possible, equipment managers should take a long-term view on capital expenditures. Planning for purchases helps the utility avoid unexpected expenses and better monitor cash flow and debt.

“The No. 1 thing you need to do is communicate and have a good partnership with the chief financial officer,” Stephens says. “I am the eyes and ears of the CFO, identifying what’s out there and what we need."

6) Don’t forget the warranty

Stephens advises equipment managers to purchase a warranty that covers them against unexpected problems beyond the first year.

“Anything can happen after 12 months,” Stephens says. “The more technology, the more electrical issues that come up.”


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