Procurement Considerations for Heavy Machinery and Parts

Written by Teow Jun Bing, DPSM

by Teow Jun Bing, DPSM

The purpose of identifying and selecting an appropriate procurement consideration is to find the best way to obtain the solution and result to satisfy the needs of the end user for obtaining the most advantageous pricing and contractual conditions through a competitive process. Finding the best heavy machinery and parts can often be a challenge with faces difficult site conditions or a limited budget. Below is a picture of parts and assemblies of heavy machinery.

Following best consideration practices will help any professional in ensuring that the end user with the heavy machinery and parts which needed and even if face unique obstacles or project conditions, will be provided. Those techniques will help management successfully achieve its goals.

Current and Future Financial Situation

Consider current financial situation to decide if have the capital to buy the heavy machinery and parts that needed, or renting may be better option. Look beyond to current situation and project costs over the several months and years for both purchasing and renting which compares between of two. Buying may be a larger one time a financial burden, but the cost of renting can add up quickly, and over a long period it could end up costing more. Not to mention, when own, it will see a return on investment when sell.

Project Specification

Every job is different. The challenges posed by certain job sites are like uneven terrain or excessive dust. It may require specific heavy machinery or safety features. If possible, get a sense of the job site conditions this heavy machinery will be up against. Information from investigations and condition reports on future projects can give a sense of what will need to handle. Fielding potential concerns can also help source the right heavy machinery and parts.  

Length of Project and Frequency of Jobs

Some companies may only need a piece of heavy machinery briefly. It just longs enough to cover a few projects or seasons. If customer doesn’t need heavy machinery for long-term use, leasing or renting may be a better option than buying. If it is a short term job or onetime thing, then renting probably will makes more sense. Working on a long project, or if got several jobs come up, then buying could make sense.

Buying New or Used Machinery

Having new heavy machinery and parts could help show professionalism to clients. Some new technology comes in, can always upgrade the computer system of the heavy machinery and parts as modify it to the way like. It also avoids initial depreciation on heavy machinery and parts which take advantages of available warranties. New heavy machinery and parts can be beneficial in the long run that have full control over and help to land more projects.

Not every piece of heavy machinery and parts need to be new. Often, used heavy machinery and parts may be significantly more affordable and typically won’t need extensive maintenance, or repairs compared to new heavy machinery and parts. Used heavy machinery and parts also doesn’t lose as much value as new heavy machinery and parts over time. Most market depreciation will be seen in the first year of use. Because the preowned items are typically older, it won’t have to worry nearly as much about that lost value.

Risks and Availability

When planning to rent heavy machinery, there is always the potential risk of a rental company not having the heavy machinery need when need it. Taking on jobs without planning notice and changes in project schedule could be more detrimental to business. The big advantages of owning own heavy machinery and parts is that available to 24 hours. It can react to unexpected changes in project schedules, take on last minute jobs, and help to complete projects with less downtime.

The Tax Implication

Discuss with accountant or bookkeeper, someone with experience who can trust, and figure out where will stand at tax time if purchase or rent this piece of heavy machinery and parts. Sometimes rental expenses can be deducted as a business expense. Buying a piece of heavy machinery and parts, however, is a capital expense that must be treated as such at tax time. It can’t deduct the entire expense during the year in which it was purchased. The capital costs are then depreciated over the useful life of the piece of heavy machinery and parts. May be able to leverage a depreciation deduction for the heavy machinery and parts that have purchased for business.

The Interest Rates and Resale Value

Manufacturers and dealers always provide for business owners with low financing to make it more attractive to buy heavy machinery and parts. Do research to see if now good time to be with low interest rates and find a financing option that is right for business. If interest rates are really high right now, may be better off renting until rates go down. Do research on the different brands and models before decide to purchase the heavy machinery and parts that needed. Some may hold value better than others, and will be a better investment for resale value. If consider may sell in the future, select the right heavy machinery and parts based on annual depreciation and performance might help the financial difference that  to decide rent or buy.

The Cost of Maintenance and Testing

Unless rent or lease a piece of heavy machinery and parts, the end user will need to regularly maintain it to keep the heavy machinery and parts functional and safety. Some heavy machinery and parts are easier to repair than others. Some manufacturers may not fabricate replacement parts for some models. The end user may also use third party tech that is not compatible with a certain piece of heavy machinery and parts. Factors like these can complicate repairs, making maintenance more expensive or difficulties.

A reputable dealer that’s confident in the value of its products may be willing to let test out a piece of heavy machinery and parts. A quick walk-through can know if the heavy machinery and parts is in good or bad working condition. It though may require assistance from a worker with certifications or training necessary to operate it. New or used must always inspect the before purchasing.Take for a test run to see how it handles and listen for odd noises. Have a trusted certified mechanic look it over and make sure it is mechanically sound with good operation. Some extra precaution before purchasing will save many big headaches later.

Conclusion

Even skilled professionals may run into difficulties when sourcing and procuring. Fortunately, the foresight and the right planning can help keep on track. By using these best practices especially those that involve considering unique industry needs or potential job site hazards. It will help secure the best possible heavy machinery and parts for a business.


References

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Gregorypoole. (2019). “What To Consider When Buying Used Construction Equipment”. Retrieved from https://www.gregorypoole.com/what-to-consider-when-buying-used-construction-equipment/, accessed 12/12/2020.

Holtca. (2020). “Benefits Buying Used Equipment”. Retrieved from https://www.holtca.com/company/news/benefits-buying-used-equipment, accessed 12/12/2020.

Mickie Foong Mee Keat, PDPM. (2019). “Key Consideration for Sustainable Procurement”. Retrieved from SIPMM: https://sipmm.edu.sg/key-considerations-sustainable-procurement/, accessed 12/12/2020.

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Thompson Rental Services. (2019). “10 Factors to determine Buy or Rent”. Retrieved from https://www.thompsonrentalservices.com/10-factors-determine-if-you-should-buy-or-rent-your-construction-equipment, accessed 12/12/2020.

Ungm. (2012). “Areas Public”. Retrieved from https://www.ungm.org/Areas/Public/pph/ch03s04.html, accessed 12/12/2020.

Vivien Cheah Khar Wai, DPSM. (2019). “Six Procurement Best Practices for the Construction Industry”. Retrieved from SIPMM: https://sipmm.edu.sg/six-procurement-best-practices-construction-industry/, accessed 12/12/2020.

Way Tian Chai, DPSM. (2019). “Key Stages for Purchasing Heavy Equipment Parts”. Retrieved from SIPMM: https://sipmm.edu.sg/key-stages-purchasing-heavy-equipment-parts/, accessed 12/12/2020.

About the Author Teow Jun Bing has several years of experiences in the field of Service Management, specifically in the heavy industry. He holds an Executive Certificate In Purchasing Management, and is a member of the Singapore Institute of Purchasing and Materials Management (SIPMM). Jun Bing completed the Diploma in Procurement and Supply Management (DPSM) on December 2020 at SIPMM Institute.

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