New product generations, increased automation, new production sites, there are many reasons why you need a new machine or an entire production line. Likewise, there are several options for their acquisition. In the following different possibilities are highlighted, helping you to find the right model for your company.
When you buy a new machine or production line, it becomes your property. Ways of financing such investments include either internal funding or external funding, e.g., bank loans or loans by private investors.
The main advantage lies in a machine or line tailored to the concrete specification and the needs of a manufacturer. The disadvantages include the high upfront investment which requires sufficient liquidity. Additionally, the buyer needs to ensure utilizing the machine sufficiently as only this will enable him to repay or regain his investment. If this is the case a purchase will be the most cost efficient way of access a new machine.
Normally used machines or lines are cheaper to obtain and, in the currently tight market environment, they may also be available more quickly, which is a positive side effect.
However there will be costs for retrofit, disassembly, transport and assembly of the machine. In addition, the condition of the machine must be carefully considered.
Leasing of machines implies a fixed rate due for a predetermined term independent of the actual utilization of the machine. The lessor remains the legal owner of the machine and the lessee needs to account for the leasing liabilities and right-of-use asset. The lease agreement specifies which party assumes which obligations, such as maintenance and liability in the event of damage. In addition, what happens after the leasing-term (asset return, sale, …) is agreed-on.
This variant offers the use of new machines as well as used machines and thus access to a production at the latest technological level without high investments. This results in a higher cash liquidity. Nevertheless, the total costs and the balance-sheet impact can be higher than the costs of a credit-financed purchase.
Equipment as a Service is can be seen as a further development of machine leasing. Here, machines are not purchased or leased but provided by a supplier for a usage based fee. In contrast to leasing, the supplier remains responsible for maintenance, service, repairs and spare parts.
From a cash perspective, this also eliminates high capital expenditures (CAPEX) and replaces them with pay-per-use or pay-per-part models as operating costs (OPEX), reducing business risks and improving cash flow from investing. The result are reduced business risks and an improved cash flow from investing.
The principle of Production as a Service, as opposed to Equipment as a Service, applies the same logic from a single asset to a production process consisting of multiple assets (production line or factory).
Here, highly flexible production lines or factories are financed externally and shared by several users. Like Equipment as a Service this comes with pay-per-use operating models and thus the likely CAPEX to OPEX shift. Hereby, further customer benefits in the form of digital technology (e.g., predictive maintenance) or even operation of the production can be included. In case of the latter, sharing of a factory among multiple manufacturers becomes possible.
Are you interested in Production as a Service and want to learn more?