Repair, replace rationales at forefront of beverage operations
Cost major concern in equipment evaluations
All beverage operations, regardless of segment, are challenged by machinery and equipment repair or replacement issues for processing and production equipment, packaging machinery, and distribution vehicles.
In today’s beverage operating environment, decisions to repair and replace are more important because the Constant Change Syndrome (CCS) in product characteristics, packaging configurations and distribution methods have dictated that new and/or advanced technology be adopted to remain competitive.
Because all beverage categories are under a constant siege of change, the critical question is: What rationale can be used to determine repair termination on existing equipment or replacement needs involving new models?
Many factors affect the repair/replacement issue and have had an impact on capital investment, purchasing decisions and marketing positions.
Franchisee reallocation, facility ownership, management philosophy and functional responsibility are major aspects when considering repair/replacement. All items have played a role and industry actions bear witness to the impacts that are occurring.
Cost always is a major concern, and reviewing some factors might be helpful in reassessing or developing a practical rationale.
Termination of repairs
Repair assessment must originate by determining whether specific equipment or machinery can be repaired.
First, component change parts might be unavailable for existing process equipment. Second, machinery might have component or entire machine changes in such magnitude that making repairs can be impractical or impossible. Third, beverage distribution vehicles are vulnerable because variability in package configurations and delivery methods has created the need for flexibility and repairability.
Unavailable parts, obsolescence and component interface within a process or line makes repair a difficult decision, but consideration still must be given to each situation to determine whether repair is possible and practical.
Many approaches can be used; however, one view considers the critical cost level (CCL), which represents the difference between the expenses to repair versus the cost of an entirely new machine. For example, if new equipment cost $200,000 and the cost to repair the old equipment is $100,000, it constitutes a CCL of 50 percent.
Management can use this type of rationale, choosing 50, 60 or even 70 percent, to determine when to terminate repairs. There is no magic equation, but it should be based on specific conditions involved with any repair/replacement project. Operating environment, staff competency level, timing, machinery life, management philosophy and practical application are major factors when establishing a bona fide rationale.
However, because products and packaging drive the entire supply chain, producers and distributors must consider how often and how large the impacts will be on their facilities.
Once an CCL is reached, determining the complexity of replacement must be done in a detailed and comprehensive manner.
The products and packages that are on the horizon usually are unknown. That is why a comprehensive analysis, not only of the marketing picture, but also of the technological changes and advances continually appearing on the process/production scene, must be thoroughly researched and evaluated.
Replacement usually means new and advanced technology; however, caution must be exercised on some factors often overlooked in the process:
- Machinery Life: Over what time period is the machine expected to perform?
- Obsolescence: Will current design become short lived?
- Capability: Does the equipment have flexible capability?
- Capacity: Will the machine provide output and interface with line configuration?
- Parts: Will sufficient supply be available over time?
- Cost Justification: What is justification for the purchase and what is the payback of the investment?
The repair/replace issue will never go away. The driving forces will become more frequent and more expensive, but repair/replacement rationales are mandatory in a cost-intensive environment.