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An OEM’s Burden of Equipment Maintenance and Investment

No matter what, manufacturers will always have at least some burden of equipment maintenance. Whether the bulk of that equipment is in cutting, welding, machining or assembly, inspection and regular maintenance is a requirement of Original Equipment Manufacturers (OEMs) and contract manufacturers alike. This puts pressure on OEMs to invest in the most necessary capital equipment and calculate the annual returns of a machine relative to its yearly costs. OEMs must balance their equipment investments with outsourcing options to remove unneeded overhead costs. As such, sharing the load with contract manufacturing partners is becoming increasingly more popular.   

View this infographic to learn about the advantages of a one-stop shop manufacturing model.

Lifetime Equipment Costs Are Staggering if Unused

OEM-burden-equipment-main-invest-small-1.pngCyclical production times and an uneven forecast of future projects can translate into serious losses for OEMs that overinvest in capital equipment. A laser cutting machine, for instance, can cost more than $1 million upfront and $20,000 a year to operate. Average annual equipment maintenance costs will vary between 3 or 4 percent of the original investment ($30-40K per year for a $1 million machine). Along with equipment costs comes machine redundancy, as it’s likely that an OEM will invest in more than one piece of the same equipment to ensure uptime of the service. Investments in spare parts, like RF tubes for laser cutters (which have a lifespan of 3-4 years), further add to costs.

OEMs must be sure, then, that the equipment will not see too much downtime. Allowing a contract manufacturer to accept many of these costs gives OEM manufacturing more flexibility to invest in assembly or personnel as the demand for products rises and falls. 

Invest in New Equipment Wisely

Sudden spikes in product demand aren’t necessarily indications of long-term trends. Machinery and equipment OEM Caterpillar learned the hard way, investing nearly $10 billion in new equipment and facilities during a global commodities boom in 2010, according to The Wall Street Journal. Caterpillar now faces its fourth-straight year of falling sales and has reduced its workforce by 20 percent in the same timeframe. While it can be tempting to strike while the iron is hot and buy new equipment, reactionary spending can be costly in the long run if the market dips. Outsourcing via contract manufacturing can help meet demand spikes until a trend is confirmed while also serving as a safety net.

If You Do Invest, Proactively Schedule Time for Equipment Maintenance

As true for OEM manufacturing as it is for custom metal fabrication, scheduling time for regular maintenance is crucial. While it can be tempting to keep the machine operating for as much time as possible, the costs of delays from equipment breakdowns will be more expensive than a scheduled freeze in operations. The best maintenance is proactive maintenance, not reactionary maintenance. Plan ahead so you can anticipate capacity/time for maintenance delays.  

A Comprehensive Guide to Choosing The Right Metal Fabrication Partner