Building an Acquisition Matrix For Better Test Equipment Management

Engineers who easily solve the most difficult technical challenges often run into seemingly unsolvable problems when their task is stocking a facility with electronic test equipment. Even when a manager starts with the most detailed project plan, difficulties arise because of limited budgets, project changes and shifting business conditions.

A host of factors can leave your program lacking the test equipment you want, while instruments you no longer use languish on the shelves. The reason this happens is that most engineers use a “one component” strategy to acquire test equipment. The component most often used is buying all test equipment new and holding onto it forever.

Test equipment management usually starts and stops with decisions about which instruments to buy. But a growing number of engineers are adding other factors about how to acquire equipment. They are discovering additional components to plug into their test equipment acquisition procedures: leasing or renting equipment instead of buying, and acquiring refurbished and used equipment instead of new.

When you understand why each of these components is the most effective answer for a specific situation, you can use them all to build a “multicomponent” matrix for all of your acquisitions. This will enable you to control the most and best equipment for your money, and to adapt your test equipment program to changing needs.

Renting, Leasing or Buying

First, consider how long you will need a piece of equipment. If your company is project-based, like many companies that develop hardware products, the time you need an instrument is often the duration of the project.

Leasing or renting a test instrument for the length of time you actually need it means you pay only a fraction of the instrument’s total purchase price.

Renting

Engineers normally rent equipment for short-term use. They may want to replace equipment that failed, or evaluate equipment before purchasing it. On some occasions, companies rent equipment when they don’t have the capital to buy it.

Rentals are available with uncommitted terms, where you rent week-to-week or month-to-month as needed, or committed terms, which commit you to a specific time frame such as six months or a year. Uncommitted rentals are more flexible and can save money if you are uncertain about how long you will need the equipment, but they are also more expensive on a daily basis.

Rental rates are somewhat higher than lease rates and should be used for short-term equipment acquisitions of 12 months or less.

Leasing

Leases are designed for longer time periods. Like rentals, they let you acquire test equipment without paying the full purchase price of each instrument up front.

There are several leasing options. Operating leases allow you to acquire test equipment only for the time you need it. Operating leases are one way to ensure against owning obsolete instruments.

Financing leases let you own the equipment at the end of the lease. Financing leases are a way to pay for your equipment over a specified period of time so you can have many instruments right away.

Buying

You may decide to meet long-term test equipment requirements by purchasing instruments. If your operation is not project oriented—for example, repair- or service-based facilities—your equipment requirements will be fairly stable. You can buy most of your test equipment outright with less worry about obsolescence or changing requirements.

New, Used or Refurbished Equipment

Now that you have the basic components of purchasing, renting and leasing, the second parameter to consider for your acquisition matrix is what category of new, refurbished or used equipment your operation requires.

New Equipment

If your company develops the latest cutting-edge technology, some of the test equipment you need will be state-of-the-art. In this case, there is no substitute for new equipment.

As a rule of thumb, if an instrument model you need was released less than two years ago, new equipment is your best choice. If an instrument model has been released for more than two years, reliable instruments are available in the secondary market as refurbished and used equipment that you can acquire at substantial savings over new equipment.

Used Equipment

The average general-purpose test instrument model has been on the market for four years, so there is a broad selection available in the secondary market. Many newly released models use the same technology as older models, but they have been redesigned to include the functions of more than one instrument in a single unit. If the instrument you want falls in this category, secondary market equipment instruments should meet your needs.

There are significant differences between used and refurbished equipment. The used classification refers to equipment that has been owned and put in use prior to resale. The designation covers a wide range, from warranted manufacturers’ demo units to “as is” units of unknown function and accuracy.

Used instruments in general are subject to little or no repair or calibration before resale and thus are less expensive than refurbished equipment.

When buying used equipment, it is important for you to know the history and functionality of the instrument and to assess the risk factors for your program.

Refurbished Equipment

Refurbished equipment gives you a third acquisition option. Refurbished equipment is subjected to extensive testing, repair and calibration before resale. Refurbished test instruments can save you 30% or more over the price of new equipment.

Refurbished equipment is being increasingly used by companies that need to meet strict internal and external quality standards but want to lower operating costs. When you consider refurbished equipment, check out the supplier’s quality standards and warranties to ensure equipment reliability. Serious equipment managers audit in person the repair and calibration facilities of refurbished equipment suppliers.

Disposing of Idle Equipment

The final component to consider for your equipment acquisition matrix is how to dispose of equipment that you no longer need. Idle equipment doesn’t contribute to productivity or profitability but it does occupy valuable storage space. And your company’s tax experts can’t write off equipment that is not in current use.

Selling or trading-in your idle equipment will bring in money that can be used toward the purchase of newer and upgraded equipment. It also ensures against owning obsolete test equipment.

Very few manufacturers accept trade-ins. To sell or trade-in equipment, your best bet is to work with a multivendor test equipment supplier.

Controlling Cash Flow

Just as you can modify the flow of electrical current to achieve desired effects in a circuit by using various components, you can modify your company’s cash flow by using the components of purchasing, leasing and renting with a mix of new, refurbished and used test equipment.

By acquiring secondary market equipment, you lower your costs. By substituting leases and rentals for some of your purchases, you slow the outward flow of cash. (Table 1). By selling or trading-in idle equipment, you infuse your acquisition system with more buying power.

Table 2 is a worksheet you can use to prepare an acquisition matrix of equipment based on your needs. Use a separate worksheet for each instrument. As you gather data from vendors for your matrix, you will also discover which services are available from each vendor to help you determine the best components for your acquisition program.

About the Author

Anthony Schiavo is Chairman and CEO of Telogy. Before starting the company in 1984, he, founded and served as President and CEO of U.S. Instruments Rental, a subsidiary of U.S. Leasing International. Previously, Mr. Schiavo was a sales and marketing executive at Dana Laboratories and its subsidiary, EIP Microwave. He received a B.S.E.E. degree from Lehigh University and an M.B.A. degree from the Harvard School of Business. Telogy, 150 Shoreline Dr., Redwood City, CA 94065, (800) 835-6494.

Table 1

Table 2

Instrument model # Purchase Rent (< 6 mo) Lease Best choice

cost cost cost

New (new technology

< 2 years old) $ $ $

Refurbished

(> 2 years old) $ $ $

Used $ $ $

Idle equipment

list

Trade-in/sale value $

Transaction cost: Subtract equipment trade-in/sale value from the best choice cost.

$

Copyright 1996 Nelson Publishing Inc.

February 1996