Criteria for the Purchase of New Equipment
Criteria for the Purchase of New Equipment
Usual replacement criteria for the process equipment’s are, when all the depreciation is absorbed and the service life has come to an end. Other possibilities of replacement can be:
- Drastic changes in process plant may necessitate the replacement.
- Advances in the technology may make the replacement necessary.
Purchase or replacement of equipment can be viewed on three different considerations.
- Economic considerations.
- Performance evaluation, competitive alternatives.
- Additional changes necessary from process point of view.
- True cost of the new unit.
If the new equipment reduces production cost considerably, it becomes inevitable to replace the existing equipment. The existing equipment can be sold to prospective buyer to generate some funds for the purchase of new equipment. The balance fund has to be raised from reserves or operating budget. In all circumstances, the purchase of new equipment should not become a liability, because if it affects the operating budget, fund scarcity can hit the process plant operation.
If additional changes are necessary for the replacement of equipment, it should be critically analyzed and its impact be assessed.
The true cost of equipment replacement depends upon freight charges, local moving cost, hiring of outside skills for the installation, additional cost of power, utility lines etc. Site preparation cost has also to be considered.
If the new equipment is much heavier than the old one, plant floors, substructures to carry additional weights need to be modified.
Also some financial considerations may be necessary for accessories required, safety installations for the new replacement equipment.
Replacement has also to be considered in terms of performance evaluation such as:
- Production capability.
- Technical soundness.
- Plant layout considerations.
- Versatility of equipment.
- Produced improvement.
Any changes in plant layout will need money and it should not become a liability.
The product improvement, enhanced capacity achieved by replacement
should not be too
costly.
Reliability and maintenance factors are considered in terms of testing,
repairs and equipment
parts needed.
