Lowest cost to own...

Anthony wrote:


<snip>
All true, of course. In fact, new technology is the wild-card in everything I wrote. Even if you were to buy a machine and leave it in the box, never use it, and later offer it for sale as a brand new item, it's value would eventually decrease to zero. What that means, in terms of real world costs, is that you need to think about how advanced a machine is, or how/where it fits into the flow of technological progress, in addition to just its physical quality and life expectancy.
In fact, you almost have to think in terms of planned obsolescence. Not planned by the people who design and build machines; but planned by you, right into your business strategies. My own view is that if something continues to do what you bought it for, then it's never really obsolete, even if the guy down the street has something newer and fancier. But as a market commodity an and asset value, machine tools age pretty quickly. We're all familiar with those dear and special machines that literally last forever. Old Acme's, for example, or P&W Jig Borers. And I know shops that still make money using those machines. But to sell them would be preposterous. They're not even worth scrap value, once you unplug them. So, to buy a machine whose physical life is longer than its financial life is to plan on keeping it forever. Long before it wears out and stops working, it'll be valueless to everyone but you.
Planned obsolescence in your business stategy means deciding in advance what a machine's life cycle will look like, and buying, using, and maintaining each machine in a way that keeps its productive value always in line with its dollar value. In other words, if you EVER plan to sell a machine, then you have only a certain window in which to do that. You need to keep the machine long enough to make it pay for itself, and to return the profit that you want from it. That's the minimum period of ownership. The maximum time you can keep a machine is determined by it's value on the used market. And that value will decline in time with BOTH physical wear AND technological aging.
As you say, your Mazaks could be kept physically young for a long time, for less than the cost of replacing them. But they could easily be ancient in the marketplace before you ever recover your rebuild costs.
And, of course, even if a machine continues to do what you bought it for, and is never really obsolete in your appliation, you still have to compete with the rest of the world. If your sweet old machines can't do their jobs as well or as economically as their newer counterparts, then keeping them busy will get harder and harder. And, there's never any guarantee that the work you originally bought them for will actually be needed in the future. Technological change drives your customers, too. You don't want to be perfectly equipped to run .005" tolerances out of 12L14 bar stock, when the world is looking for .0005 tolerances, and when leaded materials are considered to be poison.
Life is change. Change is good. Ergo, life is good.
KG
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Interesting point, Kirk. It's not so much the machine that is critical to a shop owner, as it is the assumptions that the machine purchase is based upon. By this I mean that shop A and shop B could purchase the same equiupment, but if shop A's business strategies are not in alignment with future market conditions, shop B would outperform...even though the same means for production are available to both.

Very well put.

It's all about being able to fortell future conditions. Hmmm...I bet a psychic shop owner would make a killin'! <G>
<snip>

Logic to live by.
--
Robert Davidson
President
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Hey, now you're talking, my 1942-1944 brownies I bought in 1973 for $3K each have made me (so far) over 500K each (and I do keep track) & I still use them, not as much in the last 8 yrs due to 200 pcs orders.
I would have to pay someone to haul them off ( and they are small OG's)
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I think reletively 'modern' equipment is more like a car. Take my circa 1986 r2c3 bridgeport, new cost ~35k, my cost 1990, 15k estimated retail value now, 2-5 k, kinda like a car. It drops to a point and sits fro quite some time. There are regular bridgeports selling out there for as much as they cost new[in 1955]. WE even have collector machines, like collector cars, I paid 3500 for my 1942 10EE, what did it cost new? Your brownies are no longer considered 'useful'[no offense] while a bridgeport of the slghtly newer vintage is useful. Old NC equipment is the same way, there is too much better newer used equipment out there, so it is scrap.
Some stuff is funny, can't get a good deal on vibratory tumblers on ebay. I paid 17k for my FA kalamaazoo cold saw 10 years ago, and you don't see them used for under 8k, not a bad depreciation ramp really. I think people pay silly money for used haas/fadal machines.
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No offense, They are set up on repeat jobs, one they order 3000 SS pins every month they furn .093 SS material cycle time 5 seconds price .25 cents ea. They do better than my CNC machines, which cost way more than 3K each <VBG>.
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I think paying for new ones is silly money too. Especially Haas and Fadal.
-- Ken
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Kirk is right about residual pricing. Asset valuation is a major part of a lease company's business when considering a True Lease (the residual will be Fair Market Value at the end of the lease term). That being said, I'm not sure I would recommend using the residual valuation of prospective equipment as the main factor in deciding which line of machine tool to get. According to P.V., there are some very specific questions he needs answers to, like: reliability/maintenance costs, service packages, cost of consumables (fuel & parts), etc. These questions lead me to believe that P.V. is not just looking to see what a given machine may be worth in 5 years, but also what it will cost to run, contrasted with what money it will earn, in those 5 years. (although you would think a machine's general profitability would be a major factor in its residual price...)
If you would like to reduce a large pool of possible choices, order the candidates according to their residual valuation after 5 years. Take the bottom 40% - 60% of the list and discard. Then start your serious research by determining the net present value of each remaining candidate. This part is going to be a long and tedious process, but much better than the alternative of a blind guess. Plus, the results will be specific to you and your shop's needs, as opposed to a general industry-wide valuation.
I wish I had a simpler answer, but if you really want to get right down to the nuts and bolts of decision making, you will need to do a NPV comparison. You can find a nice discussion on the topic here: http://www.woodweb.com/knowledge_base/Net_present_value.html
I suggest you use your machine dealer or salesman to gather as much cost/benefit info, for each machine, as possible. Use your best judgment when setting up your assumptions. Best to be conservative...the greater risk is with the buyer, not the seller.
A general article on the subject of equipment acquisition can be found here: http://www.mmsonline.com/articles/090103.html
If you would like to compare NPV of a purchase vs. lease, let me know...I'd be happy to help.
--
Robert Davidson
President
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