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20. February 2019

JML: Strategic equipment upgrades versus new machine investment

JML: Strategic equipment upgrades versus new machine investment

Managing costs for a foundry is challenging and the recent “Trump tariffs” have added to the increasing cost pressures. Owners and managers are often faced with difficult decisions when it comes to upgrading their operations. Should you upgrade your existing equipment, buy new equipment or try to source second-hand machinery?


Today we speak to Jean-Francois Bouveur, from JML Industrie, who has over a decade of experience working with businesses, helping them answer these very questions.  

Foundry Planet (FP): What steps should be taken when evaluating current investment needs?

Jean-Francois Bouveur (JFB): You should always start with your business objectives. A clear strategic vision of your foundry in 5 years makes it possible to plan properly for the future.

It is also valuable to review current resources and your team’s skill set. If you are thinking of investing in equipment to expand your operations, do you have the manpower to operate it? It goes without saying that if you don’t have the financial investment required for new machinery, you have to focus on maintaining existing equipment.

Asset utilisation ratio is a good tool when reviewing your operational processes. Are you at capacity? And if you are at capacity, is it fluctuating? Or guaranteed a steady flow of retained orders in the years to come?

One final way of evaluating the investment would be to review the asset turnover ratio. This can be an especially valuable calculation if you are trying to decide between investment of two different pieces of equipment and you wish to better prioritise for your foundry. For asset turnover ratio, you would estimate how much revenue you expect to generate for each euro you have invested in your new assets.

FP: What tends to be overlooked when clients evaluate their investment needs?

JFB: I touched on this briefly, but installation and maintenance costs can be overlooked in upgrade strategies and second-hand purchases. When investing in new equipment, a key advantage is that delivery, installation, and initial maintenance are all included in the investment cost. What can be challenging when investing in second-hand equipment are the ‘hidden’ costs, such as equipment storage pending installation and training for the team. Not all equipment requires training of course, this is very much dependent on why there has been an investment in the first place. 

At JML Industrie, we appreciate that not all foundries are in a position to invest in new equipment. It can be tempting to invest in machinery from an existing foundry due to budgetary restrictions, however this can lead to unexpected demands on the existing factory structure, water supply or access points. One of our strengths is the ability to optimise the current factory operations when integrating new equipment. 

For those that decide to go down the new equipment route, it is also important to consider the cost of loans in the total cost calculation. Loans tend to be for large sums and even at a rate of 1.5% a loan of €4 million would cost you an additional €309,992 over 10 years. 

Deciding to invest or not is always a balancing act. On one hand, you have considerable investment that you will not always recoup in pure ROI. On the other, you have improved productivity, energy efficiency gains and reduced downtime. 

Finally, downtime should be considered and given a financial attribution. Not only does it impact the bottom line, but it also impacts the reputation and reliability of your foundry. Time spent fixing equipment always results in lost productivity. If this happens frequently, a further consequence is that it can also damage team morale.

FP: Unfortunately, we have seen a number of foundries close recently. What is the European market currently like for purchasing used equipment from such foundries?

JFB: It is always sad to see foundries close. We have seen this in France as small foundries have consolidated or been unable to continue their production. This has provided an influx of second-hand machinery. 

Upgrading existing equipment in this way, if you are able to transport, store and install it, can be incredibly advantageous for foundries that are not able to secure the funds for investment in new machinery. 

It certainly helps if there is a strong in-house maintenance team, as these machines rarely come with any guarantees. The risk is higher, but there can be a big trade-off in terms of raw investment costs, as long as you have a way to manage all the associated costs that can quickly accumulate.

FP: When considering investing, most businesses operate on a ROI model. Is this applicable in the foundry industry?

JFB: We see more and more clients being asked by investors or banks to prove their investment in terms of a Pay Back Period. Outside of this industry, benchmarks for Pay Back Periods are between 18 and 36 months. But this is not realistic for foundry equipment. It can be challenging to explain the other returns that come with this type of investment. The main benefit being the opportunity to grow a foundry in a sustainable way.

You don’t often get a pure ROI with equipment, but without it your business will struggle to grow. Costs have to be considered but it is more about the development of your business and the guarantees in terms of delivery and quality you are able to provide your clients.

FP: Are there clear efficiency gains from investing in new machinery versus upgrading or maintaining existing machinery?

JFB: I would like to be able to say yes, but honestly, the answer is no. Unless your equipment is causing you so many operational problems that you are consistently experiencing delays in your production, you won’t see pure efficiency gains. For casting machinery, you might see some immediate gains, but for your sand recycling you are more likely to see an improvement in quality.

FP: What about in-house upgrades to extend the lifespan of existing equipment - do you have any recommendations on evaluating an upgrade strategy?

JFB: Most foundries prefer to invest in new equipment. The challenge is when they are in financial difficulty and the sums required for investment remove this option. Foundries therefore have to make do with their existing equipment. They can invest in regular maintenance and can get specialist teams to come in for a full revision and replacement, which can help to extend the life of their existing machinery. But ultimately, like the human body, everything has a natural lifespan, and whilst measures can be taken to improve it, there comes a point in time where the only option is to replace.

Our goal is to help foundries to do this in the most cost-effective manner. We pride ourselves on our “non-invasive” approach. By this I mean we are excellent at integrating new machinery into existing structures and can adapt as needed to the operational challenges of older foundry sites.

FP: What are the advantages to selecting a new machine over an equipment upgrade?

JFB: Generally speaking, new machinery is selected because the foundry has a clear vision of their long-term growth. They will have enough financial reserves to invest or have been able to secure a loan, both of which are evidence of their viability. 

Investment in new machinery can be part of a wider investment, as we saw with Outreau Technologies who built a completely new site and used the move to re-organise and optimise their workflow. 

Changing requirements from clients can also stimulate new investment in machinery. It might be a new contract which part funds the upgrade or it might simply be that the growth has pushed the capacity requirements. 

Regulatory requirements have also increased the need for investment in new equipment. As Health and Safety standards continue to improve across the industry, foundries are obliged to react and invest in equipment that complies.

FB: Any other advice you would give when evaluating investment options?

JFB: I would hope everyone does this anyway, but always consult a number of suppliers. We have been brought into projects where the advice was to replace numerous pieces of equipment, but this wasn’t always necessary. Smart planning and management can result in significant reductions in the total project cost. It also might lead to innovative solutions that you hadn’t thought of!

It is also fundamental to engage all the key stakeholders in the decisions when you are consulting suppliers. You will remain the final decision holder, but ensure that your technical and maintenance team, as well as your operations team, have had their viewpoint considered. You will make a much more robust decision this way and they will be far more engaged with the process.

JML Industrie have offices across Europe including France, Germany and Italy. You can contact them using the details below: 

JML France - Jean-François Bouveur 
jf.bouveur(at)jml-industrie.com
+336 246 58 06 42

JML Italy
Jml-italy(at)jml-industrie.com
+39 059 7147719

JML Germany
Jml-germany(at)jml-industrie.com
+49 6151 359 971-10

Company Info

JML Industrie

6 rue Jean-Jacques Rousseau
F-08330 Vrigne-Aux-Bois

Phone: +33 324 52 1397
Fax:

E-Mail:jml@jml-industrie.com

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