Is there an optimum time to invest in new equipment? Is there an ideal point during the business cycle for spending money to modernize a distribution center? Could this be such a time?
At first glance, that suggestion might seem absurd. Why would anyone spend precious capital to upgrade equipment—especially equipment that's running well—during a severe downturn?
But there's a case to be made for doing just that. For one thing, there are the obvious advantages of using a slow period to make operational upgrades, particularly if the changes will be far-reaching and potentially disruptive. "This is the time to reduce costs by modernizing, not when you're going gangbusters," says Bruce Buscher, vice president, sales and marketing for equipment maker Jervis B. Webb Co.
And it's hard to imagine a better time to buy new equipment and systems than when vendors are under intense pressure to offer deals in both pricing and financing.
But what about that old adage "If it ain't broke, don't fix it"? "That makes some sense sometimes," admits Juergen Conrad, director of sales for material handling equipment maker Westfalia USA. But there are also potential disadvantages to holding onto equipment for too long, he adds. For example, you might eventually run into difficulty finding replacement parts.
Plus, you could be missing out on all the benefits that come with new and improved technology. These might include better fuel efficiency for lift trucks, faster conveyor systems, and improved accuracy, speed, and safety in today's automated storage and retrieval systems.
That's not to suggest that anyone should run out and buy the latest equipment just because it's new. Investing significant sums right now to increase automation in a warehouse might be downright imprudent—especially if your operation is running at perfectly acceptable levels of efficiency.
However, at some point, all industrial and distribution center equipment will face obsolescence in terms of functional competitiveness. Simply put, industrial trucks, racks, and conveyors as well as floors and computers wear out eventually. They then must be replaced by newer, faster, more efficient equipment.
The trick is to know just when to replace them. But what is that optimum point? Some say it's when you can see big cost savings in the new. "Everyone is always looking for ways to cut costs," notes Joe Ginnetti, vice president of sales for lift-truck maker Raymond Corp.
But it's also true that the timing may be dictated by competitive factors. Every so often, a new material handling technology—one whose potential benefits are too great to ignore—hits the market. When that happens, what ain't broke must necessarily give way to the superior technology. That's particularly true if your competitors are converting over to the new systems or equipment. If they are, you'll likely have no choice but to upgrade. Whether that day comes in the trough of a recession or at the height of a boom is almost irrelevant.
The point is, the decision of when to modernize should not be a matter of whether your present equipment is five years old or 25. The decision to modernize depends on your unique circumstances and on what enables you to serve the customer in the best of all possible ways. If that means replacing what ain't broke, then so be it.
