Unfortunately, in modern-day society, we have adopted a widely accepted throwaway culture where it’s become commonplace to change cars every 3 years, swap mobile phones every couple of years, we are always looking to upgrade to the latest piece of technology regardless of whether our existing equipment was doing its job properly or not.
If only it was that simple in industry. But it does highlight a common question around what the best solution is to improve efficiency, output, reliability etc. ‘Shall I refurbish or replace my asset?’
On the first review, it is often easy to assume that purchasing a new asset will fix all of your problems. However, careful consideration should be given to fully evaluate the options and ensure that the best all-round option is selected as the initial capital expenditure can be large and may restrict other business development works from going ahead.
Some topics that should be considered in the evaluation process are:
Finance
Procuring new assets or extending the life of an existing one will often incur Capital Expenditure, perhaps the use of a loan to finance or diversion of funds from other projects. How this financial cost impacts the achievement of business objectives should be considered. Does the Return on Investment (ROI) meet requirements (often 3-5 years)?
If refurbishing an asset, what will you get for your money, and can you be sure you’ll get it? Is it a straightforward refurbish or are there lots of hidden risks which could catch you out? The whole life cycle cost of both options should be evaluated, if you want to keep your existing asset going, how long for, what’s the residual life on the asset at present, what repair works are required to extend its life, and how much will these works cost? Will it require additional inspections or maintenance to keep it going? Will some parts require more regular replacement? These minor things soon add up to a high unforeseen cost.
In some cases, you may be eligible for tax breaks or grants to help fund new investments, this might provide the justification to invest.
Maintenance
A new asset is likely to result in increased maintenance initially as early failures occur and operators get used to the equipment whilst it settles down into normal operation.
An old asset will also incur increased maintenance costs as components start to fail as they reach the end of life. Both scenarios are easily visualised in Figure 1 where failure rates (and associated costs) vary over time but ultimately the more to the right the higher the maintenance cost.
Customisation
In some cases, the new asset may have to be adapted or modified to meet your specific requirements, this will push the original ‘off the shelf’ quotation price up. This is an important thing to get right as early in the process as possible to avoid any last-minute financial surprises or general frustration due to an extended procurement process.
Also bear in mind that any major modifications may require recertification to meet UKCA (or CE outside of UK) standards which could incur additional costs too.
Robustness
As you would expect, a new asset is often manufactured to achieve the original User Requirement Specification (URS) and Functional Design Specification (FDS). But this can result in a less robust or forgiving asset (dependent on the standard of the specification provided at the procurement stage). This may result in an asset designed to meet the exact requirements and carry no ability to be modified or enhanced in the future.
Older assets are often engineered with a little more capacity for enhancements or modifications and may tolerate more variable operating conditions.
Safety and Environmental Compliance
How compliant the old asset is and what works are required to make it compliant or to reduce the risks to As Low As Reasonably Practicable (ALARP) can often be a big factor in the choice of repair or replace. As new regulations and standards evolve this can often leave old assets far behind their new adversaries from a compliance perspective. Whilst not all new standards are applicable retrospectively, there is often an expectation that they are taken into consideration, especially if major refurbishment works are being undertaken or relocation of an asset from one plant to another.
Consideration should also be given to the residual life of existing safety systems as they steadily move through their safety performance level life expectancy and failure are more likely to occur.
The cost of disposal should not be overlooked when looking at replacing an asset, an old asset may contain materials (e.g. asbestos, lead) or be subject to other legislation which makes the decommissioning costs higher than expected.
In a similar vein to safety, environmental legislation can often make it compulsory to do something regardless of the age and its original design, so should always be considered.
Reliability
It goes without saying that a reliable asset makes everyone’s life easier. As highlighted earlier with maintenance, the current position along its expected life curve can have a big impact on an asset’s reliability. As an asset gets older it is likely to have had more modifications to improve reliability and life (using a good continuous improvement process), but it will also start to suffer with component failure as parts reach their end of life or wear out.
User Requirement Specification
When looking to procure a new asset or even undertake a major refurbishment/upgrade, it is important to ensure that you have correctly documented your requirements. Ensuring you are clear about what you expect the machine to do may seem obvious but many issues with the performance following new asset commissioning are down to incorrect or poor specification at the procurement stage. From expected operating capacities to Safety Performance Levels to company standards compliance, these should all be documented and provided to suppliers at the procurement stage to avoid any assumptions or uncertainty in what is required.
Whilst all of that might seem a little daunting, the good news is that Finch can help at all stages of the process, from initial feasibility and specification to options assessment to equipment specification to tender reviews to Factory Acceptance Testing (FAT) to commissioning and handover support.
Let us help you make the right choice for your business.
Contact paul.wood@finch-consulting .com to discuss your requirements.
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