Article Written By: Clayton Arnold
Manufacturing adds a lot of value to the power of the U.S. economy. Every dollar spent in manufacturing adds $1.48 in business growth in other supporting sectors. And according to The Balance, manufacturing is forecast to increase faster than the general economy. In fact, production grew at 3.0 percent in 2017. Growth will continue into 2018 at 2.8 percent, into 2019 at 2.6 percent and into 2020 at 2.0 percent.
This growth is accompanied by a significant number of businesses returning, or “reshoring,” to the United States. A decade ago, the labor-cost advantages of offshoring for manufacturers were clear – developed markets like the United States and western Europe moved production facilities closer to their main bases of consumption. Today, according to AlixPartners, many of the labor-cost advantages that initially spurred companies to move their manufacturing offshore have eroded. In fact, more than 60 percent of manufacturers expressing desire to nearshore, and 37 percent to restore to the United States.
These conditions present a prime opportunity for businesses looking to purchase manufacturing and process equipment on the second market. Because of increased manufacturing in the United States, the demand and availability of used industrial equipment will continue to grow.
Despite constant growth and optimism, manufacturers must continue to look to ways to innovate and maximize profitability; reducing the cost of purchasing equipment and machinery is crucial. One strategy manufacturers can employ is to consider sourcing used equipment from online industrial auctions. However, despite the many benefits that buying used equipment via auction may present, which include significant cost savings and lead-time reduction, there are still many challenges, questions and uncertainties that present themselves when established businesses and start-ups alike look to buy used industrial equipment.
Our guide is divided into 4 sections to explain the benefits of purchasing used process equipment, as well as sourcing strategies.
Benefits of Used Manufacturing & Processing Equipment
Purchasing a used manufacturing and processing machine is significantly less expensive than purchasing a comparable new counterpart. Typically, the price differentiation between a piece of new industrial equipment and a comparable used alternative will range from 30 to 70 percent. In our experience, the price of used industrial equipment of any kind will primarily depend on its quality and condition. Over time, this has the potential to reduce business outlays by more than 40 percent.
Used industrial equipment and processing equipment depreciates at a significantly lower rate than new machines. As a result, a minimal reduction in value presents an opportunity to sell the machine later without suffering a significant loss in value. Because of this, many machinery dealers source their inventory from auctions and liquidations.
Once you assume ownership of any type of machinery, it will begin to depreciate. In fact, during the first year, depreciation can be as high as 40 percent. After the initial drop, the equipment’s price typically stabilizes and will remain the same for the next five years. Most used equipment is sold once its already been fully depreciated, so its rare for used equipment buyers to witness significant depreciation on their assets.
Because used industrial equipment is usually available immediately, assuming possession of it is much quicker than it would be if you purchased new. This is due to long lead times for new equipment, which are typically between three to six months. From purchase to installation, the typical lead time(s) on used industrial machinery is two to three weeks whereas the typical lead time (s) for new industrial equipment can be up to six months.
While used industrial equipment is sometimes thought of as old, heavily used, and even ‘junky,’ this is usually not at all true. There are various reasons for a company to sell working condition industrial equipment. For instance, Companies that restructure or pivot their business strategy will often attempt to sell their assets to recover capital. As a result, well-maintained, like-new, and sometimes even brand-new industrial equipment is sold on the second market.
Requirements & Specifications
Timeframe & Lead Times
According to IHS Engineering360, purchasing new industrial equipment can take up to nine months. The more expensive a piece of equipment or machinery is, the longer a business will spend considering the commitment. Due to significantly lower prices, the purchasing cycle is typically under three months. When purchasing industrial equipment, in terms of purchasing patterns, you need to consider how long you will take simply considering whether to buy equipment – even if you have a need for it.
There is a huge impact on production efficiency due to halts caused by long equipment lead times. Matthews Intelligent Identification, a manufacturing reporting firm, reports that, through stops, speed losses, interruptions and defects, manufacturers lose an average of up to 40 percent of their production capacity. As discussed earlier and in our past used industrial equipment guide, purchasing used manufacturing and processing equipment is typically available immediately.
According to the Business Development Bank of Canada (BDC), prior to purchasing used processing equipment or machinery, it’s important to assess your business reality. The BDC, in their article, 9 Tips for Making the Right Equipment Purchase, recommends asking the following questions: “Are you looking to increase productivity? Will this new equipment make you more successful in the marketplace? Will it help you stay ahead of your competitors? Can you upgrade instead of buying new equipment and still get better performance?”
Sourcing Used Equipment via Auction
In one of our previous guides, we analyzed the benefits of the three most popular methods.
Used Process Equipment Purchasing Methods
There are many methods to source used process machinery and manufacturing equipment. These include used industrial equipment suppliers, auction platforms, as well as online marketplaces. Below is a list of the primary options available to a business when sourcing used manufacturing equipment, as well as a brief analysis of their benefits and drawbacks.
Industrial auctions may be hosted online and/or onsite. The main benefit of online auctions is remote bidding, which allows buyers to participate anywhere they have a reliable internet connection. While onsite auctions do not feature remote bidding, they typically provide buyers the opportunity to physically inspect an item’s condition.
Price and convenience are two of the general benefits relevant to both online and onsite auctions. Since industrial auctions are hosted when a seller wants or needs to sell a large amount of inventory in a short period of time, the equipment’s starting bid will be set to cover cost, thereby providing buyers the opportunity to purchase processing machinery at less than retail value.
Used Machinery Dealers
Buying from machinery resellers, or used machinery dealers, is the easiest way to source used process equipment and machinery. Apart from convenience, the benefits of purchasing manufacturing equipment may include limited warranty, transportation, setup, as well as financing services.
Although these benefits make the purchasing process simple for buyers, they typically come at a cost. As a result, machinery dealers are usually the most expensive way to source used manufacturing equipment.
Every online marketplace is different, so the benefits on one platform may not hold true for another. When selecting an online marketplace, it is crucial to evaluate the marketplace independently and in comparison, with other alternative. In a past article, we consider primary factors to evaluate online marketplaces. We emphasized the importance of size, reach, specialization, activity, as well as set up costs.
With this criteria, we evaluated identified and evaluated eBay, Amazon and Aucto as three of the top used industrial equipment marketplaces. The primary difference between the three platforms is that Aucto is an industrial-specific marketplace. While Amazon and eBay have industrial-supply categories, Aucto was created as an auction and liquidation platform for used industrial equipment and machinery.
The Benefits of Online Process Equipment Auctions
Lower Prices: Earlier, we explained how used processing equipment and machines can be sourced at 30 to 70 percent cheaper than sourcing new equipment. The table below illustrates the potential price savings you can expect when purchasing used processing machinery.
Less Competition: Online industrial auctions are a simple to way to save more money. Since online industrial auctions are still growing in popularity, the market is not saturated with buyers. This means the market is not as competitive, meaning sellers and auctioneers are more likely to begin bidding at a lower amount to guarantee a sale.
Convenience: Remote bidding allows buyers to participate in an online auction from anywhere and at any given time. This provides incredible ease of access and removes geographic barriers once associated with used process equipment auctions.
The Online Auction Process While the specifics of every marketplace differ, most online auction platforms share. We outlined the general phases and considerations that should be made at each stage of the auction process.
Stage 1: Registration & Inspection
After registering for an online sale, to minimize risk, it is highly recommended that you become fully informed on the asset and where possible undertake an inspection. In online auctions, such as those hosted on Aucto.com,
We compiled a list of details that buyers should make themselves aware of prior to purchasing used processing equipment and machinery:
Stage 2: Auction
During the auction, lots will be called in order of how the lots are listed. Every lot in the auction will have a unique lot number assigned prior to the auction. During this time buyers can place bids on lots they are interested in purchasing. The auction platform or marketplace you’re using will indicate the time remaining to bid on the lot, as well as the current winning bid amount, as well as the next minimum bid increment.
Stage 3: Post-Auction
Interested in Used Processing Equipment?
If you have specific questions about used processing equipment on our platform, contact a member of our support team. As well, to learn more about Aucto’s platform, watch our introduction video below.
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Written By: Jamil Rahman