How to get the latest test kit on your bench

27 July 2011

Nigel Brown is CEO of Microlease

With equipment budgets remaining tight in the continued uncertain financial climate, more and more designers are finding their firms are becoming more reluctant to buy new equipment outright. Nigel Brown explores the different options available to firms that need test and measurement equipment and explains why, depending on the usage case, leasing or renting could make better business sense.

In the modern market, gaining access to the latest test equipment is essential for many designers and engineers. Yet, however your procurement cycle is organised, there’s no escaping the fact that buying electronic test and measurement equipment requires a considerable amount of capital and a commitment to ongoing costs and management.

When times are tight and companies are treading a financial tightrope, a more cautious approach from the finance department can put essential equipment requests under threat. Hardly surprising, when you consider that many of the specialist instruments needed contain complex technology and so inevitably carry a very high purchase price.

Rather than put themselves at a competitive disadvantage by forcing their design teams to make-do-and-mend with older equipment, many smart UK companies are now taking a more innovative and strategic approach to securing the equipment they need and dramatically reducing costs in the process.

This involves not only evaluating the all-important technical specifications of the equipment but also taking a more measured approach to how the equipment will be used.

Evaluate the technical specs
This business-focused approach to obtaining equipment has long been best-practice among many companies in the USA and in parts of Europe. Essentially, the process starts by determining whether or not it makes better financial sense to rent or lease the necessary equipment, rather than buying outright. Key considerations include the frequency and period of use for the equipment, the environment in which it will be used and the likelihood of technological obsolescence.

This choice also depends on the type of project and technology the company is involved in and the complexity of the product, as the design process can vary in duration from a few months to many years. A good example is the mobile communications industry, where specific standards apply and it will inevitably take time to get these ratified with relevant manufacturers before the product is ready for market. In addition, test equipment may not be needed at every stage of design – and different kit may be needed to test at different stages.

Just as many companies know that buying a fleet of new cars for their staff rather than leasing them or renting for short durations would make poor financial sense, so too does buying equipment outright without considering that projects and needs may change and the technology may quickly evolve.

The latest kit without blowing the budget
The fact that electronic test and measurement equipment often carries a substantial price tag is something that many engineers and managers in these cost-conscious times are fully aware of. When procuring this equipment it’s not just the purchase price that should be considered but also the overall life costs.

Not only are firms required to find the capital for the initial outlay, but they also commit to ongoing costs over the life of the equipment. According to the research firm Frost & Sullivan, many of these costs are hidden, making the total real cost of ownership far higher than is often thought. The ongoing support costs, maintenance, calibration, tracking, management and disposal, as well as the cost of capital mean that, on average, a high-end piece of equipment can end up at double the original purchase price.

It is also often the case that different equipment is needed at different times in the design process. At the early stages this might be at component level and, in the latter stages, at system level, depending on the nature of the product. So, in many cases specific equipment is needed for some of the initial evaluation and development, then for testing and evaluation of design and then pre-production field trials as a repeating cycle.

Renting gives you the flexibility to deploy the right products at the right time, without saddling the organisation with the costs of the equipment for life. Renting also removes both the cost and time of managing the equipment, enabling access to the required instrumentation without the added responsibility of managing the calibration, maintenance, repairs and upgrades.

Another major advantage of renting is that a business can afford to perform short-term projects, without large cash outlays. It also allows companies the flexibility to change or upgrade equipment and reduces the cost of maintaining equipment in-house. Renting provides access to the most modern and advanced instruments for a small percentage of the purchase cost, better enabling companies who cannot afford to buy equipment outright to get hold of the latest equipment whilst also benefitting from company’s expertise and specialist technical knowledge of the most up-to-date products.

Leasing – the answer for long-term flexibility?
If your firm will definitely be using the equipment continuously for longer periods of time, an operating lease offers a simple, cost-effective solution and can be a viable alternative to purchasing an instrument outright. Typically, contracts are fixed between three and five years and, as this is shorter than the lifespan of the equipment, the price is significantly less than the equivalent cost of ownership.

The primary benefits are therefore financial. Leasing can save capital, improve cash flow and greatly reduce the cost of ownership and the equivalent cost of ownership. In fact, the equivalent cost of ownership is, on average, 25 per cent higher than leasing.

The lease does not require a hefty capital down-payment. Payments are fixed over the term of the agreement, which also helps firms manage budgets more effectively. As the costs are an operating expense rather than capital expenditure, leasing is more tax efficient, as businesses can usually deduct the cost of lease rentals from taxable income, rather than claiming capital allowances against a purchased asset.

In addition to financial rewards, the leasing option can also be beneficial in terms of keeping equipment up-to-date without the financial burden of maintenance, calibration, obsolescence and repair costs. With a lease, this burden is left to the leasing company and when the lease expires, there is the flexibility to upgrade or return the equipment.

Leasing options can also be tailored to suit individual business needs, with the choice of a simple lease at a competitive rate, or a lease with manufacturer services bundled in under one simple monthly charge. Alternatively, for a fully-outsourced solution, it is possible to add management services.

Mixed approach
The types of equipment that are most commonly bought are the low-end instruments such as power supplies and general purpose test equipment. Technology for test and measurement instruments tends to change in three to five year cycles and, with this type of instrument, the technology would not date as much or as quickly, or require constant upgrades, so it could still be used for the same purpose in ten years’ time.

Finally, it is also worth considering that it is still possible to benefit from high-quality at a lower-cost when investing in pre-owned equipment.

Whether businesses choose to rent, lease or buy their test and measurement equipment depends largely on the type of equipment needed, the expected utilisation and the financial priorities of the organisation. In today’s competitive market place it is essential that companies have access to the best equipment at the right time for the right price.

Many of the financial packages available through the test and measurement companies are flexible and can be tailored to suit the customer’s needs. The options of renting, leasing or buying are varied and flexible (you can also rent-to-buy for example) but the end result is always the same - businesses can lower their costs and improve efficiency.

The benefit of hindsight
If most designers and engineers stopped and looked at the equipment they have bought outright, the chances are that, in many cases, they would not be able to honestly say that it has delivered a maximum return on the initial investment over the course of its life – particularly if it is left unused.

While in the past this may not have been such a critical issue as getting hold of the best tools for the job, the reality is that now more and more finance teams and designers are working to tighter budgets and buying outright is no longer a viable option in many cases.

To avoid the need to compromise on the latest advancements and to achieve a faster time to market, now more than ever designers in more sectors can help their firms - and themselves - by thinking closely about the equipment needs and usage and taking advantage of flexible procurement options.

Nigel Brown is CEO of Microlease


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