Buy or lease – do you need to own engineering equipment or just use it?
03 January 2019
Enabling clients to lease engineering equipment, rather than buy it outright, is becoming an essential option to be able to offer customers and at UnitBirwelco we’re doing just that.
Often referred to as ‘products for service’, leasing may appear to cost a little more, but this has to be weighed against the benefits, which include the lessee/user not having to find the capital in the first place, or worry about depreciation, maintenance or disposal. The question any customer needs to ask is: does the business need to own the equipment or just use it?
Most people are familiar with modern leasing alternatives for vehicles. When you lease a car, the dealership retains ownership while you pay a monthly sum to drive the latest model and have it serviced at regular intervals. At the end of the lease period, you give it back and exchange it for the next latest model. The concept of ‘products as a service’ is broadly similar.
Aside from being able offer their customers flexibility, manufacturers and product suppliers are beginning to recognise the benefits that can accrue to them:
- Products can be designed to meet in-house standards and not be driven by the need to provide clients with bespoke engineering solutions that add to costs.
- This leads to standardisation and volume repetitive production, which in turn leads to lower manufacturing costs and pricing advantages through bulk purchasing.
Some industries have been quicker than others to react to the opportunities provided by the ‘products as a service’ approach. Aircraft engine manufacturers, for example, now say they are selling “power by the hour”, not engines. An air conditioner manufacturer recently reclassified itself as a “cooling service”, not a seller of air conditioning units. And perhaps the best examples of all are the software houses who lease their products under the banner of “software as a service.”
In the world of products and equipment, once ownership of the equipment remains with the manufacturer, everything changes.
The constant requirement for capital outlay on the equipment needed to keep a factory modern and efficient is a major headache for most businesses. The ‘products for service’ option can therefore be hugely attractive, with customers paying for use of the equipment through an agreed monthly or annual fee (inclusive of finance charges) and the manufacturer remaining responsible for depreciation, maintenance and disposal.
Having the latest equipment leads to greater efficiency and fewer production issues – it may even help win lucrative new contracts. The overall benefits can easily outweigh the costs, which anyway are spread over a longer period through a lease.
Every business needs to keep an eye on costs in today’s competitive environment. The financial outlay is particularly crucial for companies operating in emerging markets, such as Shale Gas recovery, where the ‘front-end’ explorers are faced with having to finance their early efforts for no immediate return. The Lease of engineering equipment can provide the solution.
So, buy or lease engineering equipment, which is best?
The straight answer is that everyone’s requirements are different and, while leasing may not be the perfect solution for every situation, it is certainly worth consideration – especially for those operating in process industries.
If you think leasing might provide your business with a competitive edge, please make contact for an exploratory discussion.