Whether you’re a manufacturer, a tech-led startup or a hospitality operator, investing in your business’s equipment or systems involves big decisions that can bring big rewards. In this article, we’ll focus on manufacturing businesses, but the same principles can apply whether you’re considering an investment in food processing equipment, payroll or inventory management software, a better POS set-up, or sales and marketing tools. If you want to grow your business, beat your competition or make a better product, investing in new equipment and technology could be the ticket.
Reduce Manufacturing Waste
Wastage comes in many shapes and forms and can impact a business in different ways. There’s the moral issue of waste. Are you leaving a positive footprint on the environment or is the manufacturing of your product contributing to landfill or carbon emissions? Then there’s the loss of productivity if your old equipment wastes time or raw materials due to inefficiencies, restrictions or outdated technology. Maybe your existing equipment is energy inefficient, increasing your costs and carbon footprint. When considering investing in new equipment, reducing waste will benefit the business on many levels and help you reduce your carbon footprint.
Become More Efficient to Offset Margin Pressures
Manufacturing businesses can find themselves in a tough spot with major retailers who look to squeeze their margins to increase their own profits. Initially, securing a wholesale deal with a major supermarket, a hardware store chain or a national retailer with a tight grip on their market will be cause for celebration by the manufacturer or supplier. But that excitement can turn into a business headache, as the major chains throw their weight around and ask for ever-cheaper prices.
The manufacturer might’ve increased production to supply its new customers by hiring new staff, or leasing extra warehouse space, only to find that after their margins come under pressure they’re making less profit than before. Once a business has scaled, there’s usually no turning back and the last thing they want to do is miss out on lucrative opportunities. One way to offset shrinking margins is to become more efficient, and for manufacturers, investing in the latest equipment can achieve this.
Margin pressure can also be caused by inflationary issues like rising electricity and gas prices, the cost of raw materials, wage rises or supply chain factors. While these costs may not be within your control, you can reduce them by investing in new, more efficient technology. It will cost you more upfront, but it gives you better control over your costs and saves money in the long run.
Consider Lifecycle Costing, Maintenance and Risk
Lifecycle costing is an accounting tool that factors in all the costs associated with an asset. When determining the cost of investing in new equipment, compare your current equipment’s lifecycle costs compared to the cost of putting in a new machine. While the initial investment might be significant, you can figure out how long it will take before your new equipment pays for itself. Here’s some of the lifecycle costs to consider:
- Does the new equipment require less labour, thereby reducing wage costs?
- Will it increase output by producing more units per minute or hour?
- Can you reduce your energy costs with more efficient machinery?
- Will you create less waste and save money on raw materials?
Maintenance costs are another significant factor when deciding to replace old machinery. Calculating and forecasting these costs can help you make an informed decision on a new investment. Consider how many spare parts you’re holding and how hard they are to get. How often is it breaking down and what is the cost to the business if the machinery is out of action?
Running old machinery isn’t just a risk to the business financially; it can also pose safety risks to staff and customers. When you upgrade to the latest technology, you’re investing in something that is safer, creates a better quality product and is more ergonomic for its operators.
While investing in new technology should provide a return on investment eventually, decisions need to be made whether you keep the current machinery in place alongside the new equipment, or replace it entirely. Consider whether new technology can replace everything you currently do, or if you should stagger your upgrades to maintain capability.
Avoid Quick-Fix Solutions
Sometimes the cheap, easy or obvious solution can lead to a situation that is hard to manage or undo. Here’s a case study involving a confectionery manufacturing business that was facing supply issues due to increased demand for their products. Their current equipment, while functional, wasn’t able to produce enough goods to resolve the supply issues. They had already added extra shifts in the evenings and weekends, which meant paying staff overtime and penalty rates, thereby reducing their profitability and becoming difficult to manage.
The business had 2 options: Continue down the path of trying to improve the current machinery and paying increased wages, or investing in new equipment. After investigating new technologies, doing life cycle costing of their current equipment and forecasting lifecycle costs on new machinery, they made the decision to invest. The business used manufacturing equipment finance to purchase modern machinery that could automate their processes. Picture an old kettle that has to boil sugar, requiring someone to switch it off when it reaches boiling point. With their new tech, this was just one process that was automated and they were able to reduce mistakes, increase safety, and deliver a better quality and more consistent product.
Investing in Manufacturing Equipment Can Open Doors
The Australian Government has a range of grants and incentive programs available to manufacturers under the Modern Manufacturing Initiative (MMI) . One example is the Manufacturing Modernisation Fund , a co-funded grant to help Australian manufacturers modernise and upskill by providing up to $1 million to manufacturers to purchase new technologies to be more productive and create more jobs.
While the ocean of grants and incentives can be very difficult to navigate, you don’t have to go it alone. BlueRock’s dedicated grants and incentives team can help your business secure funding to boost your growth and catapult you to the top of your industry. Book a consultation with the team to see what’s possible.
BlueRock’s Gold-Star Manufacturing Model
With careful planning and some solid advice, you’ll be able to make confident investment decisions for your manufacturing business to improve profitability and drive growth. Once your business is at the stage where it maintains a stable efficiency with minimal unplanned events, you’re on track to obtaining a level of Gold-Star Manufacturing. Gold-Star Manufacturing is achieved when your business:
- Generates less waste
- Delivers quality products to customers on time
- Keeps your employees safe because they are required to intervene less in unplanned events
- Has a positive footprint on our planet
Invest In Your Manufacturing Business With Confidence
If you’re considering investing in equipment upgrades, be confident in the success of your growth strategies by plugging BlueRock’s experienced manufacturing consultants into your team. Our accounting team can update your product costings and determine profit increases based on the improved lifecycle costs of new machinery. Our General Insurance team can help you insure your precious new machinery. Our Asset Finance specialists can secure you the most competitive funding to finance manufacturing equipment. And if there’s an R&D grant or tax offset available, our Grants and Incentives team will determine your eligibility and help with your application.
Our manufacturing consultants offer best-practice, multidisciplinary expertise to the manufacturing industry across every aspect of business operations and growth. We’d love to talk through your business challenges and goals.
Book a free consultation for your manufacturing business with a BlueRock manufacturing consultant .
