The decline of manufacturing in America in the last decade due to lower labor costs overseas together with a trend of mergers and acquisitions, is a deadly duo leaving in its wake a large number of closed manufacturing plants. Inside those factories is a wealth of equipment someone needs to deal with.
Thriving manufacturing companies also have a sizeable amount of surplus equipment they need to dispose of. Historically, the options available to manufacturers for dealing with their surplus equipment ranged from:
- Throwing it away
- Storing it
- Calling a dealer, who buys the equipment for pennies on the dollar and then tries to find someone to buy the equipment for more than he paid for it
- Calling an auctioneer and hoping there will be enough bidders at the auction to realize a price that at least covers the cost of the up-front check to the auctioneer to market the event
“Some companies have internal staff charged with figuring out what to do with their surplus equipment, and often it’s done in a disorganized way. Most companies have no formalized energy on this at all,” states Roger Gallo, CEO and President of EquipNet, Inc., an asset management company headquartered in Canton, Massachusetts. “In our outsourcing solution, we bring in technology and sophistication along with a set of capabilities that put that process more on a professionally managed track, which allows us to help companies realize higher value from their surplus assets.”
When it was closing a facility, Teva Pharmaceuticals USA, the largest generic drug manufacturer in the world, benefited from EquipNet’s expertise: 646 redeployed machines resulted in a savings of $7.6 million, and 1,100 machines were sold for $1.9 million. GlaxoSmithKline, Novartis, Eastman Chemical, ConAgra, and Unilever are among the manufacturing companies that have realized the benefit of EquipNet’s solution.
An Equipment Partner
EquipNet provides services in one of two scenarios. In the first, it fully takes over the asset recovery function for a manufacturing company–a soup-to-nuts outsourcing solution. Its goal is to redeploy the equipment.
For a multinational client with 150 manufacturing plants around the world, for example, Plant A may consider buying new equipment, unaware that the company’s Plant Z has what it needs.
In this scenario, EquipNet values the assets, catalogs and tracks them, and then creates a private exchange while also dealing with Sarbanes-Oxley compliance “We market the company’s surplus equipment internally first, making people aware of equipment the company already has that could be redeployed to them and save them from a capital expenditure,” said Gallo.
Once that effort has been exhausted and there isn’t a home for particular equipment, EquipNet uses its robust marketplace exchange (www.EquipNet.com) on the Internet to try to find buyers around the world.
Alternatively, where companies don’t want an end-to-end solution, EquipNet works in partnership with clients’ internal asset recovery staffs to bring needed strengths for particular functions. “For example, they may not have sophisticated software like ours that is capable of cataloging the equipment, tracking it, and marketing it internally,” explains Gallo.
In either scenario, Gallo says companies turn to the outsourced solution because they will undoubtedly get higher returns for the equipment. They also have a greater degree of control over the returns. Gallo says, “Without us, they have a level of risk because they don’t know how well they will do at an auction until the end of the day. On our marketplace exchange, items are sold individually; so a seller always has the right to accept or reject a price, giving them control of returns.”
Once sold, EquipNet also handles the complex logistics process of getting the equipment to the new owner. Some equipment is warehoused by EquipNet, but typically, the equipment stays in the facility where it was running, facilitating a potential buyer’s inspection. Once sold, EquipNet locates a rigger that is expert at freighting the equipment to the purchaser’s location–often easier said than done.
“Some equipment may be no bigger than a printer. Some may be a 50,000-gallon vessel. Some of the equipment we sell, especially for our chemical customers, are huge reactors and may be three stories high,” says Gallo. “Somebody has to go into that structure, disassemble that equipment from the structure, pull it out–and they may have to remove walls or a roof–and then repair the walls or roof. Some of this can be very complicated.”
Saving Money
Even with the costs of disassembly/assembly and transport, the market value for used manufacturing equipment is usually 50-60 percent of new equipment. Used equipment has two other advantages. It avoids the lead time of new equipment (often nine-to-twelve months from the order) and, because it has been working, a lot of the engineering issues have already been solved.
Jai Narine, President of Eniran Manufacturing, a neutraceutical products manufacturing firm in Farmingdale, New York, buys equipment from EquipNet almost every month. He says, “We can save significant dollars by buying from EquipNet instead of buying new machines. And they deal a lot with the major pharmaceutical companies, whose equipment is in excellent shape.”
He says he had tried to locate used tablet presses, blenders, granulators, capsule-filling machines, and oscillators from other places but couldn’t find such items anywhere except from EquipNet.
Gallo comments, “If you go to our Web site, we’re pretty deep into the kinds of equipment that we sell. We have a lot more inventory than anybody else at any given time.”
Narine also owns A&J Machine, Inc., located in New York, which provides consulting services for start-up manufacturing companies. His firm buys equipment from EquipNet for the start-ups, replaces worn parts and cleans the machines, conducts a pilot test on each machine, then transportsand installs them. They then train the start-up staff on how to run the equipment and how to eliminate downtime.
It Just Makes Sense
Whether it’s a smaller company like Eniran Manufacturing or a giant company like Pfizer, manufacturing companies need to invest in developing their products. “It doesn’t make sense for them to invest in trying to develop the kind of technology EquipNet has for asset redeployment, the sophisticated algorithms to identify likely buyers, or the sales force we’ve developed,” says Gallo.
“We’ve spent millions and millions of dollars developing the database that matches particular pieces of equipment with the types of manufacturing companies to which they apply. We also have a 40-person sales force that does nothing but contact people every day to find out what equipment they need and what they have,” states Gallo.
It just makes a lot of sense to outsource and leverage a service provider’s investments in resources and expertise.
Lessons from the Outsourcing Journal:
- In an outsourced asset redeployment solution, the service provider brings investments in sophisticated technology and a set of capabilities that help clients realize higher value from their surplus assets.
- An outsourcer handling asset redeployment will also facilitate compliance with Sarbanes-Oxley.
- An outsourcer specializing in asset redeployment may also bring expertise in the logistics processes involved in disassembling, delivering and assembling the equipment.
About the Author: Ben Trowbridge is an accomplished Outsourcing Consultant with extensive experience in outsourcing and managed services. As a former EY Partner and CEO of Alsbridge, he built successful practices in Transformational Outsourcing, Managed services provider, strategic sourcing, BPO, Cybersecurity Managed Services, and IT Outsourcing. Throughout his career, Ben has advised a broad range of clients on outsourcing and global business services strategy and transactions. As the current CEO of the Outsourcing Center, he provides invaluable insights and guidance to buyers and managed services executives. Contact him at [email protected].