Whether it’s best to buy new equipment, refurbish existing, sell or lease depends on economic and accounting considerations and, increasingly, environmental influences and legislations

There was a time when all production managers considered just one thing when they needed to boost production: a new piece of machinery. The process would inevitably be long-winded, with the time taken to reach a decision increasing in direct proportion to the cost involved. If the board agreed, the finance director would insist that payback be achieved as quickly as possible, which meant running the equipment flat out, 24 hours a day, seven days a week, until it broke down; fix it, and start again.

Lean manufacturing is in the process of confining that concept to the annals of history. Pedro Azevedo is now Manager of Continuous Improvement with Bahco, part of SNA Europe, which includes Snap-On tools. He was presented with a previously unconsidered reality when he attended a presentation by Simpler Consulting, having been appointed Lean Manager at the site.

“They asked: ‘are your machines slow enough to produce at the takt time?’ That was a challenge for me,” he says. “Ever since I graduated in mechanical engineering, I worked in process and was always looking for better machines as a route to improvement.” The challenge at the time was to improve performance, productivity and profitability at the company’s factory in Portugal. It had some pretty sophisticated machinery, which could process three different types of file simultaneously. In keeping with thinking at the time (early 2000s), it was geared to batch production. That produced too much inventory and lacked control – the plant management had no idea how much it was making each day. Azevedo and his team rescued old equipment, which was en route to the scrapyard, and brought it back into the factory.

In with the old
“Instead of one machine making everything, we had three, each making different sizes,” he says. “We aligned our production to ‘pull’ – what the customer was actually using. We achieved better control and eliminated stocks of finished goods.” The equipment was also, crucially, easier to use. The new approach – use it until it won’t do the job any more – is being spread throughout SNA Europe.

“We look into all the possibilities whenever we have to replace worn-out machinery or increase capacity,” says Azevedo. “Rebuilding the old machine, buying new or buying second-hand. What we often find when we look at new equipment is that it offers far more than we need, with speed and functions we will never use. There are so many functions on new machines that they simply don’t offer fast changeover. They’re geared to large batches, which doesn’t fit with our philosophy.” Prior to adopting lean manufacturing, Bahco’s factory produced in batches of thousands. Now it has runs of 150 or so, right down to as few as 30. “Imagine the number of changes we have to undertake,” he says. “We’ve got changeovers on one line down from an hour or so to six minutes; on another, from 20 minutes down to 60 seconds, all with older equipment.”

The experience of working with older equipment has undoubtedly given flexibility, but it has brought other benefits too, which will bring a smile to the most jaded finance director’s face. “We bought a machine not long ago that cost us two bottles of port wine,” he says. “The company we got it from was making components for Honda. The customer ended production of that model and this company stopped using its machine. They were probably going to scrap it; for two bottles of wine and the cost of removal and transport, we bought it.”

t’s not the only bargain the company has on its premises. In 2006, it needed more grinding capacity. “A new machine would have cost €150,000 (about US$202,000); we got a used one for €6,000 (about US$8,100) and spent €4,000 (about US$5,400) on refurbishment. It may not be the most fancy machine but it’s been doing its job for two years, with no breakdowns,” says Azevedo. His team often buys from professional brokers, who themselves buy anything from single machines to complete factories that have seen their production move elsewhere or whose owners have gone bankrupt. “If it’s completely worn out, we won’t take it; we need to see that it’s working normally,” he says. “They have to be prepared for safety, too.”

So money needs to be spent to set the equipment up and the ongoing commitment has to be appreciated. “The maintenance schedule is very important. We measure effectiveness in production using OEE on an hourly basis. If we see a machine has got breakdown problems, it will be more expensive to fix. Normally, if machinery has become worn out, we will simply scrap it.” But some problems with older equipment can be fixed more easily and less wastefully with attention to detail.

Waste not, want not
“Production of a particular tool was transferred from Sweden to Portugal three years ago and we were finding a lot of breakdown problems with a particular machine we used for making it,” Azevedo recalls. The question: ‘can your machines run slow enough for your takt time’ remains a very valid one. “We reduced its speed to the same as the next one along in the process, which was painting, and had no further problems. Simply balancing the line solved it.” A footnote: having been threatened with losing business to China, Bahco Portugal is now selling products there.

There is definitely a market for second-hand robots, which is likely to continue through the credit crunch and downturn as companies think twice about investing in new equipment. Earlier this year a robot could easily be picked up for around £4,000 (about US$6,900), depending on its functionality – but it depends on supply and demand. Robots are becoming more accessible to SMEs further down the supply chain because they are more user-friendly. They have good diagnostics, good uptime and longer periods between failures, facilitated by better user interfaces. A mix-andmatch approach to modernising processes and assembly lines can enable a company to afford stateof- the-art equipment in part of the operation, because it can buy robots at reduced prices. But it does depend on the process; if it’s very sensitive, then a note of caution. More modern equipment is better-equipped to adapt to changes that would have had their ancestors terminally confused. But older equipment, with caveats, can enable smaller businesses to effect a big impact on their costs without necessarily losing flexibility. However, any second-hand purchase should be approached with at least as much care as one would exercise in buying any other largeticket item.

Beware of the red tape
“If you buy an old piece of equipment you should pay close attention to the latest regulations – your duties and obligations and what you may have to do to bring it up to working order,” says Andrew Hellyar-Brook, Works Engineering Manager with Bentley, in Crewe, UK. “A spraying system that’s, say, 20 years old, was designed and built to legislation from 20 years ago. If you’re investing a significant amount, health and safety will expect to see a significant upgrade.” He believes there is a huge amount of ignorance of requirements, even among large OEMs – that old equipment can be reused without much consideration: it can’t. And not only is buying used equipment or upgrading it something to be done with care; selling it should be approached with caution, too.

“We don’t normally sell to individuals because of legal liabilities,” he says. “Under the terms of PUWER – the Provision and Use of Work Equipment Regulations 1998 – you undertake a significant risk if you do. If there’s something wrong with the machinery or they have an accident, they can come after us. That said, by using a reseller or an auction house, you have a buffer.” Nor will Bentley sell items to be scrapped to an associate (employee), no matter who they are – forklift truck driver or senior board member. “We are an ISO14001 accredited company; we have to show that we have proper control of waste streams.” Not that scrap items have been much of a problem; Bentley has expanded since 2000 with the arrival of the Continental line, and everything for it was new and identified for the purpose.

“We invested around £65m (US$112,500) in the Crewe site; of that, £19m (US$32,900m) was on production facilities,” says Hellyar-Brook. “There was a possibility of reusing equipment from the Group but we decided that, for our particular requirements, the answer should be no. The GT line was bespoke and there are features that are Bentley USPs, especially the wood and leather in the interior.” Making the interior is very specialised and the investment led to some disposals, but nothing of any great significance. “We disposed of some tools because we changed the techniques of manufacture – for example, we used to cut leather with a press system. We did away with that and now use laser-guided cutting machines, which make better use of the hides. In the wood shop, we now use a robot for the quality. We got rid of the old machines, either to the second-user market or, where it wasn’t worth it or there was a problem with the sale, we’ve had to scrap some.” On the other side of the coin, Bentley did recently procure a robot that was available from the group’s ‘stores’ – an online inventory of available equipment.

In the US, Pirelli decided that the mix of plants it had in Des Moines, Iowa; Nashville, Tennessee and other locations, didn’t suit its needs in that particular market. It now makes 350,000 to 400,000 tyres a year for high-performance vehicles and SUVs at a purpose-built factory in Rome, Georgia, which is kitted out with its self-developed MIRS (modular integrated robotic system). This uses equipment specifically designed for the company by Italian company Rutil, from Lonate Ceppino, Varese, and other vendor partners. The plant is a ‘lean exemplar’ within Pirelli and it has been designed from the outset to be adaptable. It’s highly automated, with around 200 employees, including support functions.

Adapting existing equipment
Moulded component supplier Mitras Automotive, not far from Bentley in Winsford, has adopted a ‘horses for courses’ approach. “We bought a new Canon press last year for our new factory, which we acquired for a new process – ECPD reaction-injection moulding,” says Martyn Starkie, Works Engineering Manager. “It gives us a unique niche in the market, which complements our SMC rigid component production.” The facility – one kilometre from its established plant – was new to Mitras, but not new. “We did face some challenges. Our machines are tall, so we were limited as to the equipment we could put in.” The equipment in the new plant was largely new, as the process is uncommon, but energy performance considerations have led to other purchases which have helped to improve performance from existing equipment.

“We’ve invested £50,000 (about US$86,500) in energy efficiency with the support of the Carbon Trust,” says Starkie. “One electric drive motor cost £30,000 (about US$51,900) in electricity in just one year and one press may have three working simultaneously. Gas is another consideration; we need boilers on site and the centralised steam system costs a fortune to fire up. If we can drive the motors differently, reducing speed by 20 per cent, we can save 50 per cent of the energy costs.” Upgrading existing equipment with AC inverters helps to achieve that speed reduction, also helping to improve reliability – and it’s worth checking to see what the company actually has. In Mitras’ case, the original motors had been bought with an eye to the future. They had to generate only 1000rpm for their equipment but 1500rpm-capable machines had been bought and fitted with downstream baffles. “Everyone had forgotten about it. We found out, removed the baffles and were able to run the machines at 1000rpm, using the inverters, and reduced consumption by 66 per cent,” he says. Lean techniques and tools are helping to improve the processes and energy savings are just part of the overall drive to improve effectiveness.

“We’re looking to work with older presses in parts of our operations,” he says. “We’ve bought second-hand and they come with faults. We don’t write them off, they are serviceable with some tender, loving care and new controls, and can be given a new life.” Mitras has also been able to improve performance by, in effect, downgrading its equipment. In the paint plant, it removed 57 sensors and 400 metres of cabling to make it simpler. Effectiveness, measured by OEE, went from 66 to 98 per cent. On the day Starkie joined the company the paint plant went down for 16 hours and it typically stopped for eight hours a day, that’s now a thing of the past.

Bentley gained the Continental line at Crewe by being able to accommodate the new line in its existing assembly hall; which it achieved through reducing the space taken by the Arnage line by over 50 per cent. But the dilemma of whether to buy or build new buildings or reuse existing ones is something the company faces on an ongoing basis. “Whether to refurbish or build new is an everyday consideration,” says Hellyar-Brook. “We have to do the sums, consider how much it would cost to modify, the extent to which it would compromise our processes, whether to knock down a large building in order to ‘right-size’, and so on.” Alterations to existing structures may make the whole building subject to the latest Part L of the Building Regulations, but where exactly that point arrives can be difficult to determine. New buildings have to meet Part L in the UK and there are similar rules across the EU – they are all covered by the Energy Performance of Buildings Directive, which was approved in 2002 and was brought into force on January 4, 2003.

In the UK, the Building and Approved Inspectors (Amendment) Regulations 2006 became effective in April that year; Parts L1B and L2B cover non-domestic buildings. They essentially require that that the annual CO2 emissions from the proposed building ‘will not exceed a target level that is established by reference to the calculated emissions from a notional gas-heated building of the same size and shape as the proposed building’, according to the notes and guidance from BRE (Building Research Establishment). The ‘notional gas-heated building’ complies precisely with the requirements of previous (2002) standards plus an ‘improvement factor’ – either 15 or 25 per cent, depending on whether the building is naturally ventilated, or mechanically vented and airconditioned. There is a problem, however, and it’s to do with how the emissions of the building are calculated, in as much as there are no hard and fast rules.

Energy performance certificates
“A lot depends on the age of the original building,” says Richard Fitzpatrick, Commercial Director of Gazeley Construction. “Changing the layout of production lines may, potentially, bring it into the new regulations. How much of an existing building’s facilities can be reused will depend on the equipment. I asked the question of our panel of engineers and they tell me it’s just about impossible to give general guidelines. Occupiers may prefer to stay in existing buildings because of the disruption of the move, the timing, or programme costs. But the market has changed in two areas: one is the new energy performance certificate. Older buildings are likely to be towards the bottom of the range (in terms of energy performance). Modern facilities will be towards the top, which may lead to issues of tradability of older buildings.” More authorities in the UK are adopting the ‘Merton Rules’, which stipulate the proportion of energy that should come from renewable resources.

“There are a couple of good schemes that can take you through the planning process needed to achieve BREEAM (Building Research Establishment Environmental Assessment Method), which rates buildings as excellent, good or poor,” Fitzpatrick says. “They apply a whole series of environmental aspects – how efficient the building is, availability of public transport, any ‘green’ travel plans in place, cycle racks and showers to encourage alternatives to driving, and so on.”

One thing is not in doubt: in the current climate, total cost of occupation is very much a consideration, rather than just rental or construction outlay. The trend is for governments across the EU to move beyond the carrot – incentives to improve buildings and construction practices – to a regulatory stick. It may be cheaper to simply move to another country with lower standards; but it may not remain that way for long.

“Part L essentially applies across the EU. If we’re building a typical speculative unit in Germany, France or Belgium, for example, standard market specification will include heating, lighting and a sprinkler system to a warehouse unit, with a consequential increase in rent,” he says. “In the UK, office areas will be lit and heated with the working area blank. In the UK, we now build with 15 per cent of roof lights (windows); a few years ago, 10 per cent was more common. Including lights and daylight access contributes to the lighting installation inside and saving on lighting is one of the easiest and most cost-effective energy savings available. In mainland Europe, there’s tighter fire control regulations, so typically a warehouse will have just five per cent roof lights. There’s an issue of energy control in northern Europe; it’s different in the south.”

Energy efficiency is also about where it comes from. It may be possible to retrofit an existing building with solar thermal panels and even ground-source heat pumps, but effective underfloor heating, from a CHP (combined heat and power) unit, could be prohibitively expensive as the whole floor could have to be ripped up and replaced. In southern Europe, high-value sunshine is available for electrical power as well as hot water.

“One can’t say whether it’s better to go for new than old – each project has to be considered on its own merits,” Fitzpatrick says. “But markets are getting tougher and companies in, for example, a multiplicity of facilities are amalgamating, say, two or three factories into a single new one. It all depends on business need.”