Weighing the ROI of Machinery Capital Expenditures

By Liz Stevens, writer, Inside Rubber

When it comes to considering the capital purchase of a new injection molding machine or a significant upgrade, or a large financial outlay to stock up on related MRO items and safety gear, rubber injection molders have several decision-influencing factors to identify and weigh. The financial angle is always top of mind, and the return on investment for technology upgrades is paramount as well. Examining the labor efficiency improvements that might come from a purchase calls for also factoring in the additional training that might be needed with new machinery. Sometimes, taking a look at service and maintenance history for existing equipment is a key tipping point toward making a purchase, but this must be judged alongside the service and maintenance anticipated for a new system. And, finally, if the COVID-19 pandemic taught industry anything, it taught everyone that supply chain and freight time/cost really ought to be part of the decision tree for any crucial equipment and all of those “must have” supporting elements.

For insight and advice about running through these key factors, Inside Rubber talked with representatives from three large vendors for the rubber processing industry. DESMA USA, Inc., Hebron, Kentucky, is a complete systems provider that offers German-engineered rubber injection molding machines, domestically designed molds and custom automation solutions. Grainger, Inc., Lake Forest, Illinois, has more than 200 locations offering MRO and safety tools, supplies and gear. Maplan Rubber Machinery USA, South Elgin, Illinois, offers Austrian-made elastomer injection molding machines and automated system solutions.

The Money Angle

In any industry, capital expenditure is the big kahuna; plant owners and management know better than anyone that there must be a dramatic and quantifiable return on such a large investment. DESMA USA’s Marc Vonderlage, North American director of sales, pointed to the quantifiable ROI that rubber processors can see following purchase of new injection molding equipment. “When properly specified, installed and operated, new equipment will impact rubber molding operations in several ways,” said Vonderlage. If the system is replacing an aging machine, reduced downtime, reduced maintenance costs and increased uptime are virtually guaranteed. “Another common benefit of installing new equipment,” said Vonderlage, “is a reduction in the number of defects that may have been generated by older machinery. A new injection molding machine, operated properly and maintained as recommended, will deliver superior parts.”

In addition to increased uptime, improved throughput and reduced repair costs, a new system may facilitate faster production. “New equipment can offer improved production efficiency,” said Vonderlage, “This often is seen in reduced cycle times which are made possible by higher performance equipment. Production efficiency can also see a boost when workers are better motivated; in general, workers prefer to operate well running, clean, new machines.”

State-of-the-art equipment also can feature Industry 4.0 elements that dramatically improve a plant’s ability to track operational performance, and that which can be measured can be improved. “And, if automation is incorporated in a system,” Vonderlage said, “it can positively impact several areas, including increased throughput, reduced labor cost and improved product quality.”

Russ Burgert, director of after sales at Maplan, said that his company is seeing very strong sales overall and unusually strong sales for the start-of-year timeframe. “This level of sales is being driven by true need for the product,” said Burgert. “We are seeing enough industry come back after the recent slowdowns that plant owners have to buy new equipment to meet demand.”

Burgert pointed out a financial angle that can benefit any equipment purchaser who buys from a European manufacturer. “Financially, everybody needs to realize where the Euro is right now, compared to the US dollar. In the beginning of 2022, it cost about $1.14 to buy a Euro. In September, it was all the way down to $0.95.” That equates to a significant monetary advantage for American buyers. “The price of the Euro,” said Burgert, “is on the upswing, but it is not yet back to the high we saw at the start of 2022. We’ll see if it keeps climbing or if, hopefully, it turns around and drops again.” Burgert noted that Europe countries have seen a lot of volatility in the last year, making it difficult to predict how the value of the Euro might change. “The bottom line,” said Burgert, “is that people should really take a look at the exchange rate and take advantage of it while it is advantageous. It’s free money.”

Industry 4.0 and the Automated Factory

The semiconductor has revolutionized life in the workplace. Plants are leaning in, more and more, toward automation for increased efficiency, higher quality, more dependability. Connectivity is proving its worth, allowing remote monitoring and adjustment of machinery. Big data is delivering astounding new insight into the nitty gritty of operations as well as raising flags about emerging patterns and trends that may signal problems cropping up on the production line.

Shelby Lasley, national accounts manager at Grainger, deals with manufacturing customers across the US. When asked if he has seen many customers implementing technology and adding automation, his answer was unequivocal. “Oh, 100 percent,” said Lasley. He cited the example of a packaging company that was continually challenged to keep the line running when workers, such as forklift drivers, didn’t show up for their shift. It was not uncommon for management to regularly pause their own work and take the place of a missing worker on the production line, in order to keep the operation from screeching to a very expensive, unnecessary halt. The owner of the company implemented robots and palletizers to minimize his dependence on undependable workers. “People are continuing to find new ways of doing business,” Lasley said, “and automation is definitely one of the major ways they are doing that. Automation because people don’t want to work, and automation just to be more efficient.”

For Burgert at Maplan, the most important technological advances lie in Industry 4.0’s connectivity; those advances are factors to keep in mind when deciding whether to invest in new equipment. “Industry 4.0 is a critical part of moving forward,” said Burgert. “It’s about connectivity to automation cells and allowing the machines to have more control.” Burgert stated that plant managers now can make changes to a production cell - as a whole system - from just one point, rather than having to individually adjust many controllers. Centralized machine-wide control also means that there are fewer specialized controllers to maintain, to repair or to replace. “With Industry 4.0,” said Burgert, “everybody can communicate very easily. It makes changing out molds easier because all of the settings are now stored in the mold recipe. It is seriously a gamechanger. And that isn’t even taking into consideration the ability to download data, and then doing what you want with the data.”

As for predicting the return on investment for technology upgrades or for a new machine purchase, DESMA’s Vonderlage offered good advice. “Judging the return on investment for a technology upgrade depends greatly on the starting point,” said Vonderlage. “If a company is starting with very basic, very old equipment, the advantages of a modern machine can be massive.” The impacts might include improved production efficiency, increased uptime, reduced part defects and reduced maintenance costs.

Regarding the ROI for a new machine, Vonderlage stressed that this must be considered on a case-by-case basis, with improved efficiency, improved product quality and increased uptime contributing significant benefits. ”It also is important to bear in mind the maintenance costs for old equipment. These days, there is a real potential for component obsolescence; that can create big risks for business interruption due to long down times for sourcing replacement components,” he said.

Service and Maintenance Impacts

When weighing inputs and making decisions about new equipment purchases, it is crucial to consider the service and maintenance aspects. By looking at the service and maintenance history and trends for an existing machine, one can sometimes see the writing on the wall: the frequency and cost of repairs keeps increasing and there is no end in sight. “That turns right back to financial impacts,” said Burgert. “Plant owners need to look at their annual spend on maintenance for each machine. And if that starts to turn lopsided then, yes, it is time to start looking at new machines.”

Vonderlage echoed that sentiment. “One of the key reasons companies consider a new equipment purchase is a realization of the excessive maintenance costs and downtime on the old equipment,” said Vonderlage. ”As machines wear or are damaged, costs to keep them operational increase and the amount of downtime increases as well.” Vonderlage pointed to the inevitable: eventually, almost all machines reach a point where it is no longer possible to repair them or no longer economical - in downtime and cost - to make continued repairs. ”And,” said Vonderlage, “even the best built machines will eventually fall victim to issues like component obsolescence.”

Predicting the lifespan of any particular machine or the future availability of one of its key components is a no easy task. “That’s a tricky one,” said Burgert. “Maplan currently is in a situation where the controller cards for our Gen 4 machines are obsolete. The controller manufacturer obsoleted the cards a few years ago; we had bought a large store of them but now those cards are running out.” Maplan builds its machine frames to last a lifetime, and Burgert said that by adding the company’s newest controller - the X6 - customers can protect their machine investment. “This comes in a new cabinet with state-of-the-art control, prewired. Customers can install the new cabinet and wire it up, and their machines are now good to go for another 12 to 15 years with those new controller cards.” But, noted Burgert, not all machines are cared for to a lifetime standard and therefore the working life determination often depends on how well the equipment has been maintained over the years.

Vonderlage raised the counterpoint to the argument of moving to new machinery due to high maintenance and repair expenses for existing equipment. “Workers and maintenance people learn their machines well over time,” said Vonderlage, “and often can quickly diagnose issues when they occur due to past experience.” Losing that familiarity and expertise can look like a factor against moving to new machinery, but is reliance on older equipment and an aging workforce to maintain it sustainable in the long run?

Vonderlage pointed out that new equipment generally has the advantage of being built around components with a long life span, and this is especially true of electronic components. “Furthermore,” said Vonderlage, “unlike older equipment, new equipment has been designed to minimize the wear and tear effect on mechanical components, and it therefore requires less maintenance.” The downside regarding maintenance on new, high-tech equipment, however, is that workers and maintenance people frequently will need to have advanced training and higher qualifications to do the work.

When the Supply Chain Buckles

Although the supply chain has recovered from its midpandemic crash, there still are pockets of continuing supply chain disruption. And although shipping and freight have recovered, for the most part, to their normal delivery times, the cost remains very high.

Lasley explained what he is seeing at Grainger, to give rubber processors a heads up on the future for buying tools, supplies and safety gear from this large distributor. “There are still supply chain issues in certain areas,” said Lasley. “We have items that we are not getting, just like everybody else. Like resin. Resin has been such an issue and it goes into so many things; there is just no way to get it during certain times. Everybody is having the same issue. But what Grainger is doing to address this is investing up front, buying in volume and increasing our on-hand inventories on all sorts of items.” Grainer also is expanding its product lines and finding alternate suppliers. “China is still shut down,” Lasley said, “and so we have gone to other countries. We are outsourcing from India a lot more and finding other avenues of suppliers.”

During the height of the pandemic, Lasley saw that many customers had to search far and wide for must-have items. In some companies, purchasing agents spent inordinate amounts of time searching for new sources. As necessary as it was at the time, it gobbled up a lot of man hours. “In some cases,” said Lasley, “people were spending hours or longer looking for an item, or shopping around to find a lower price. Sometimes it just wasn’t worth it. They spent hours trying to save money on an item, when they could have paid a little more and moved on to their next project for the day.”

Lasley said that some companies have not returned to their normal purchasing habits. “Some people stayed with that scattershot purchasing – they have all kinds of different places for getting things,” he said. “Some companies have 2,000 to 5,000 different vendors.” He pointed out that having 2,000 vendors also means cutting 2,000 purchase orders, processing 2,000 invoices and making 2,000 payments. To Lasley, keeping supply chain issues in mind is important for companies as they consider how and where to make tool and supply purchases. It may be more economical, timewise and dollarwise, to use a supplier like Grainger. This allows companies to consolidate their purchasing, and benefit from Grainger’s ability to buy in volume, from sources worldwide, and maintain a huge stock of inventory.

At Maplan, Burgert concurred that the state of supply chain and transportation issues should be part of the equation when considering a machine upgrade or a new equipment purchase.

“Yes, they absolutely need to consider those things,” said Burgert. “What normal is – I don’t know if we have a normal anymore. On the supply chain, we are really coming back. We don’t have those crazy swings of components being available and then unavailable.” He noted that sometimes lead time is still a bit longer on some of the chip-based components used in Maplan equipment, but that the situation is improving. “That, we believe, is well on its way to returning to its old normal.”

Not so, however, with freight and shipping. “Now, this transportation thing, that’s a whole different story,” said Burgert. “We are seeing transportation times close to what normal was and it is becoming steady, but the cost, the cost is not coming back down.”

The Final Review

Burgert offered some good advice for rubber processors mulling over machinery upgrades or new machine purchases. “For people considering procuring new equipment, I think they really need to take a long-term look to the future and try to get a feel for where the industry will be in ten years. I know it’s hard to predict it, but we do see some trends moving forward, especially regarding labor. The rubber industry as a whole needs to be forward thinking, for example, about the future of process engineers.” Burgert already sees a shortfall in qualified process engineers, and notes that if that state doesn’t change, automation and new equipment with Industry 4.0 features will be even more important in the future than they are now.

Investment and ROI, workforce issues and possible automation solutions, the benefits of connectivity and big data, the history and future of service and maintenance expenses, the potential for supply chain disruption, and the realities of shipping times and costs. These are some of the factors that make up the whole “is it time to take the buying plunge “enchilada. There is no crystal ball to consult to see what the future will bring, and so rubber processors must weigh the factors that they can identify and then use their best judgment to position themselves now for the next phase in manufacturing. n