Article Written By: Clayton Arnold
When businesses contemplate purchasing industrial equipment and machinery for their operations, they typically consider two options: buying new or used. Most businesses opt to source new equipment, working on the assumption that new equipment will be more efficient, easier to source and cheaper to maintain. However, buying new equipment may not always be feasible or the best option, depending on your business needs.
Fortunately, today’s top original equipment manufacturers (OEMs) design products that have long life expectancies. Despite having many years of useful life, due to plant closures or large businesses pivoting their production strategies, used (but still very new) industrial equipment and machinery are regularly listed on the second market at a fraction of the cost.
Regardless, buying used industrial equipment and machinery is still an intensive process. Educating yourself on the buying process and understanding the many factors involved prior to making such a purchase can help you mitigate the risk associated with buying used industrial machinery online.
This article will help you decide if sourcing used industrial equipment may be a good fit for your business strategy, and discuss the pros and cons of buying used industrial equipment online.
As organizations have become more comfortable selling their surplus and used industrial equipment, and buyers have become more accepting of purchasing used equipment, the secondary market has become much larger. As a result, when purchasing equipment, industrial-sector businesses often need to consider if purchasing new or used is best for their needs.
According to the Business Development Bank of Canada (BDC), prior to purchasing new or used industrial equipment or machinery, it’s important to assess your business reality. The BDC, in their article, 9 Tips for Making the Right Equipment Purchase, suggest considering 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?”
The BDC’s suggestions all share one theme: purchasing industrial equipment should be assessed in a similar manner to an investment. If the costs outweigh the revenue your business can potentially gain, lowering purchasing costs is essential. Based on our personal observations, used industrial equipment typically sells for 30 to 70 percent less than a new comparable piece of equipment; an important factor that will affect your business decision.
As an industrial project progresses, machinery capacities and requirements are determined. Typically, OEM’s will manufacture most industrial equipment and machinery after an order is placed and according to a customer’s specifications. An OEM may refer to this as made-to-order or custom-configured equipment.
Unfortunately, this often means long waits, commonly referred to as “lead-time(s),” from when you or your business place an order to when it’s finally received. Rental Equipment Register notes that lead times, for certain industrial parts and equipment can be as long as six months. In 2015, Matthews Intelligent Identification, a manufacturing technology firm, analyzed the impact production halts have on overall production efficency. Matthews reports that, on average, plants waste up to 40 per cent of their capacity through stops, speed losses, interruptions and defects. In combination with adopting Overall Equipment Effectiveness (OEE) measures, minimizing industrial equipment lead times can increase overall productivity. This is why it’s important to confirm lead time(s) with your sales representative during the project planning phase.
If you need a piece of equipment sooner than what an OEM can provide, you and your business should consider purchasing from the second market.
According to an IHS Engineering360 research report, the purchasing cycle for new industrial equipment can be as short as one month, but as long as nine. The report illustrates a direct correlation between the price of the equipment and the length of time a buyer will spend considering the purchase. In other words, the more expensive a piece of equipment or machinery is, the more likely a business will spend up to nine months thinking about whether to commit to the purchase.
On the other hand, used industrial equipment has a significantly shorter purchasing cycle. Due to a usually 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. Think of the money you could be saving – and making – by having your industrial equipment in operation sooner rather than later.
With few exceptions, purchasing used industrial equipment is less expensive than purchasing a new equivalent piece of equipment. Generally, the price differentiation between a piece of new industrial equipment and a comparable used alternative will range from 30 to 70 percent. The price differentiation largely depends on the quality and condition of the used equipment. To illustrate this price differentiation, featured below is a chart that compares the prices of used and new industrial equipment from ten different categories.
|Estimated New Price
|Vertical Machine Center
|$100,000 – $500,000
|$30,000 – $50,000
|Electrical & Power Generation
|Backhoe & Loader
|$30,000 – $100,000
|$30,000 – $50,000
|$5000 – $10,000
|$25,000 – $50,000
|Pulp & Paper
|$1,00,000 – $2,000,000
|$10,000 – $50,000
When purchasing new equipment from an OEM or machinery dealer, it isn’t unusual to be faced with long or inconsistent lead times. This is due to many reasons, such as the OEM not having certain parts or materials on hand, shipping delays, and not deploying enough staff to maintain order deadlines.
On the other hand, because used industrial equipment is usually available immediately, assuming possession of it is much quicker than it would be than if you purchased new. 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.
For most industrial equipment and machinery, depreciation will be at its highest the first 12 months following a sale. After an initial drop of 20 to 40 per cent in value, the equipment or machinery’s price stabilizes. Insofar as the equipment or machinery is maintained, its value typically remains the same for at least five years. For more information pertaining to your specific equipment, refer to the relevant sections of the IRS’ property depreciation guide– Publication 946.
Due to the relative lack of depreciation on industrial equipment after the first year, used industrial equipment can be resold at, or near, the price it was purchased for on the second market.
Research the seller. There are a few things you can do to make sure you are buying from a reputable seller. An easy way to do this is to read online reviews.
What are other buyers saying about this seller? Are people willing to endorse the seller? Have a number of customers complained about them? If so, what were the reasons and is it relevant to your potential purchase? These are all crucial questions to consider prior to purchasing used industrial equipment.
Unless you’re buying used industrial equipment and machinery to deconstruct for parts or recycle for metal, once you’ve found what you’re looking for, make sure the equipment is as-advertised and works properly.
The best way to judge an equipment’s condition is to have an actual operator examine the equipment. In addition, service records usually offer a good idea as to the condition of the equipment. If that isn’t an option, look for signs of maintenance, such as if the equipment or machinery has been painted, repaired or even just cleaned; these can indicate the level of care the equipment received by its past owner(s).
Depending on where used industrial equipment and machinery is purchased, there may be a removal and/or shipping fee. These fees will vary from seller to seller and your purchasing method. For instance, an item sold in an industrial equipment auction may still be stored at its original owners facility, in which case, the original owner, or auctioneer (if hired on behalf of the equipment’s owner), may charge a removal fee.
Used industrial equipment, like new equipment, will likely require regular upkeep and service to maintain its working condition and effectiveness. Earlier in this article, we discussed the impact downtime has on business operations.
If you purchase used equipment in an industrial auction or liquidation, a buyer’s premium may apply. Commonly referred to as a BP, it is an additional charge on a lot’s winning bid that must be paid by the winner. For instance, a machine that sells at auction for $15,000 with a 10 per cent buyer’s premium would then require the buyer to tender $15,000 + (.10*15000) = $16,500.
The Internet gives you access to a number of used industrial equipment suppliers, auction platforms and marketplaces. Below, we discuss the primary options available to a business when sourcing used industrial equipment.
Businesses which specialize in buying and selling used machinery and equipment from a given industrial sector are usually the easiest way to source used equipment. Some machinery dealers also offer limited warranties, transportation, setup and financing services; making the purchasing process simple for end-users.
All these additional services come at a cost, and machinery dealers are also usually the most expensive way to source used equipment. This is because dealers have to purchase, transport, inspect and service the equipment prior to resale. However, dealers are still a great option for businesses looking for a simple way to purchase industrial equipment at a great price.
Buying equipment and machinery at an industrial auction offers many benefits to businesses that are looking to expand their machinery inventory; the two primary benefits being price and convenience.
Typically, equipment auctions are held when a seller wants to sell a large amount of inventory in a relatively short amount of time. As a result, an item’s initial price is usally set to cover cost, thereby giving buyers a chance to bid on quality used machinery at less than retail value.
Further, industrial auctions are hosted both online and onsite. Online auctions enable remote bidding, making it possible to participate virtually anywhere. While onsite auctions do not offer the convenience of remote bidding, they enable buyers to inspect the item.
When purchasing used industrial equipment, finding the right online marketplace is crucial to a successful purchase. In a previous article, we explained the four primary factors to consider when selecting an online marketplace. We emphasized the importance of size and reach, specialization, activity and costs.
Based on these factors, we evaluated identified and evaluated eBay, Amazon, and Aucto as three of the top used industrial equipment marketplaces; each have their benefits and challenges. 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.
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