Capital Equipment Investment Considerations

Gerry Standard

The decision to buy capital equipment is often made to increase capacity because the company has the ability to sell more of what is made on that equipment. There are other considerations such as a new technology is sufficiently faster than the incumbent technology and the improvements from the new technology have other advantages that provide benefit to the organization that allows for an acceptable payback.

Sometimes, in smaller companies, the decision can be an emotional one not based on factual data or regard for payback. I recall as a young engineer early in my career being asked to reduce the time on an operation that was excessive. My solution satisfied the requirements of the accounting department however we did not sell more as a result on the investment nor was it readily apparent on the income statement where the costs were reduced. There were significant direct labor hours reduced on paper but realizing the actual benefit was not obvious. It was not until later in my career that I learned more effective ways of actually achieving verifiable results from capital equipment investments. I was an early student of Eliyahu Goldratt and Bob Fox, Bob ran me through three simple questions you should ask yourself before making a capital equipment investment.

  1. Will you sell more if you produce more?
  2. Will inventory be reduced as a result of the investment?
  3. Will you reduce your lead-time?

If you can answer yes to those three questions it is safe to proceed ahead with your justification.

Once you have made the decision to continue with the justification there are a few key steps that are important to a successful investment. Study your process carefully and make sure you know the amount of time consumed by the different steps in the process. We recently completed a project for a large client that wanted to move away from conventional machining to a more automated approach. The parts were large, heavy and round, our initial thinking was to look at CNC vertical turret lathes with twin chucks. After studying the process we found that the actual machine time was only a few minutes and the chuck change time would have been 50% of the cutting time.

We went back to the drawing board and did a much more comprehensive search for technology that would give the customer significant advantage over the current process. We found another machine that was unconventional but much more suited to the task. We designed all of the fixturing and selected all of the tooling and provided recommendations for feeds and speeds. The result was the company reduced their labor needs by more than 50% with a much lower investment than they had anticipated. I have witnessed many companies make large investments in machine tools only to have them sit idle 70% or more of the available time.

If you walk through large machine shops and count the number of spindles actually making chips you will often find that it is less than 20%. I have walked through many shops where 80% or more of the spindles were actually removing metal. There is a big difference between these types of shops. The shops where they were getting 80% utilization made substantial investment in fixturing and paid very close attention to making as much of the set up as they could external to the operation. One of the more memorable examples I recall was in a smaller manufacturing company that made their own product. They had two twin pallet horizontal machines and probably made over 100 different parts on these machines, their spindle time was well above 80%. They purchased two extra pallets for each machine and also had two people working in their tool crib preparing pallets and cutting tools. They would complete 98% of the setup offline in the tool crib, this included putting the first set of parts in the fixtures.

They would receive a signal from the operator when the machine was completing its last cycle and this two man team would wheel the pallets and cutting tools out to the machine. As soon as the cycle stopped the operator and one of the tool crib guys would lift the pallets off the machine and set the new pallets in place while the other guy was adding the needed cutting tools to the magazine and removing those that needed sharpening or insert replacement. The changeover time was less than 5 minutes and it was like watching a pit crew for each changeover.

Careful attention to the process of keeping parts in front of the machine ready to be machined is of paramount importance when making a significant investment in a machine tool. Depending on your parts you can expect to pay 30% to 100% or more of the cost of the machine tool on work holding. You should also strive to make sure the loading of these fixtures is done off line if at all possible.

I have also witnessed on many occasions machinists searching for tools to run million dollar machines, this includes tool holders and tools. When making a large investment in a machine tool expect to spend well over $100K in tooling for the machine, that last thing you want is to have this large expense sitting idle because you don’t have the proper tools. If you don’t have specific tool storage already make sure you address this aspect too. Having the tools laying around on benches and the machine will slow down your production significantly. The tooling manufacturers have factory representatives that can help you with tooling selection and if you mention you are looking to tool up a new machine you can get a significant discount on the tooling package. They want to sell you the razors so you will buy the razor blades from them. Your local MRO distributor that currently sells you your tooling can help you with the tool storage.

You should also get the machine incorporated into your preventive maintenance program as soon as possible, your maintenance personnel should be involved in the machine selection process so they know what they will be getting and can be prepared to keep it running optimally.

There are other factors to consider as well but these are the highlights, we hope this information is useful to you. Contact us if you’d like to discuss the specifics of your business today.