The Mannifest: Financing Simplifies Process Improvement through Capital Expenditures

The saying, “You have to spend money to make money,” rings true when it comes to handling in-house production. Having up-to-date equipment is a key aspect to ensuring your SMT assembly process is the best it can be, and that requires a level of capital expenditure. Trying to avoid this expense will likely cost you more in the long run. Equipment downtime, slowed-down production, damaged PCBs, and more can be the result of not investing in the future of your equipment. By investing in machine upkeep and, when needed, equipment upgrades from reputable suppliers, you will experience fewer issues and better returns.

What Is Capital Expenditure and Why Is It Important?
Capital expenditure is the money your company spends to buy, maintain, or improve its assets—such as equipment. Now more than ever, companies with in-house production should safeguard their futures by upgrading equipment as needed. Also, companies currently outsourcing production will greatly benefit from transitioning to an in-house production model. As factory automation and customer demand push the boundaries of assembly capabilities, owning machinery—and periodically investing in new machinery—may become necessary for your company to continue being competitive in the marketplace.

Gagnon_Fig1_cap.jpg
Choosing to start in-house production is certain to reduce your overhead by an average of 35–40%. And by adding select equipment to your assembly line through strategic capital expenditures, you can always stay ahead of the curve. However, you should exercise caution, always making sure that what you are adding to your production line through capital expenditure will truly be a long-term investment that will be helpful for years to come.

Key points on capital expenditure:

  • A capital expenditure is the money your company uses to purchase, upgrade, or extend the life of SMT equipment (and/or other assets)
  • Types of capital expenditures include purchases of equipment and software updates
  • Your capital expenditures should only be made on assets that will last for a year or more, making them investments for your company

Bringing Production In-House
If you don’t already own and operate your own SMT line, choosing to purchase equipment can be a great investment. Looking at an SMT equipment purchase from a total cost vs. savings standpoint, there will be a quick payback period and the benefits to business operations and overall cost savings will be so substantial that the cost of equipment will be small compared to continuing with alternate expenses.

Gagnon_Fig2_cap.jpg
In light of these savings, what companies should make absolutely certain is that they don’t underspend when it comes to installing their first SMT assembly line. Nothing is more frustrating than trying to produce a high-quality product with equipment that isn’t up to the task. There’s certainly no need to overspend either. The key is to purchase the best equipment that will get the job done effectively, while keeping an eye toward future needs and upgradeability.

Upgrades to Equipment
In the manufacturing industry, even high-quality SMT equipment needs repairs and upgrades. If you are working with a reputable equipment supplier, there should be warranties in place to help with software upgrades and replacement parts; on average, you can expect these warranties to last one to three years, depending on the machine. But the time will come when the warranties expire, or the needs of your company change, and it is time to invest in your line again. It is important to keep up to date with the available technology, or you may risk a loss of customers, reputation, and even key employees.

When it is time to purchase new equipment, companies may decide to finance their upgrade. By choosing financing, you can achieve a better equipment line-up without egregious spending, breaking up payments over a span of time.

Financing your Equipment Upgrade
Owning an SMT line could be easier than you think; by taking advantage of lower financing rates that are currently available, you could save big over an 18-, 48-, or 60-month leasing period. Depending on the company you go with, there may be special deals available (such as 0% APR for the first year), so it is always good to ask. There may also be a minimum purchase requirement (such as a $50,000 expenditure or more) and first and last payments will likely be required up front. Make sure to investigate the details and ask questions throughout the process to ensure you understand the requirements and to ensure you get the best deal possible.

Gagnon_Fig3_cap.jpg
Bonus Tip: If you have working equipment in-house, keep what you have, fixing and upgrading it along the way. It is more profitable to have it out on the floor than collecting dust. It is good to have slower machines running in the background, and then have newer, high-speed equipment in the forefront. Also, if customers and visitors come to see your manufacturing set-up, there will be a larger range and bulk of equipment for them to view.

Tax Advantages of Upgrading Equipment
During your company’s profitable years, purchasing new equipment and investing in existing equipment can open you up to tax advantages. You can retain cash and save on taxes by writing off equipment purchases through Section 179. Since Section 179 was updated in 2018 to allow for a 100% first-year deduction, even a single invoice of a machine purchase or lease during this tax year can lead to a full write-off for your company. Taking advantage of this opportunity can help reduce your overall capital expenditure and make your next equipment upgrade an even more profitable investment.

Moving Forward: Equipment as Investment
Overall, deciding to bring production in-house or deciding to upgrade your existing equipment are both examples of capital expenditure done well. This short-term expense is a long-term investment in your company’s future. Like any effective capital expenditure, it will ensure that spending a little now will result in saving a lot later. If you are looking to get started with your own production—or have noticed that an equipment upgrade may be in order—don’t wait. Shortages worldwide are making lead times longer, so it is best to ensure you have what you need when you need it by ordering early. Current lead times for new equipment are 16 weeks or longer on average. As a final point, repair the machines you own and invest along the way, purchasing before the upgrade you need becomes critical.

This column originally appeared in the October 2021 issue of SMT007 Magazine.

Back

2021

The Mannifest: Financing Simplifies Process Improvement through Capital Expenditures

10-20-2021

The saying, “You have to spend money to make money,” rings true when it comes to handling in-house production. Having up-to-date equipment is a key aspect of ensuring your SMT assembly process is the best it can be, and that requires a level of capital expenditure.

View Story

The Mannifest: A How-to Guide—Avoiding Pitfalls When Purchasing SMT Equipment

08-16-2021

When weighing your equipment options, you first must decide what you want more: a lower up-front cost or ensured reliability. Choosing used equipment will save your company money, but unexpected problems with the purchased machine may occur. With new equipment, the initial investment will be more, but you can set high expectations for the longevity and quality of the machine.

View Story
Back

2020

The Mannifest: Solutions for Customer Support During Social Distancing

05-15-2020

In this difficult time caused by the COVID-19 outbreak, businesses are being forced to adapt. Business is not as usual, but we have come to appreciate the benefits of remote services. Chris Ellis explains how this recent crisis has also led to their team brainstorming some innovative new ideas.

View Story
Back

2019

The Mannifest: Faster, Cheaper, Simpler

11-12-2019

Looking at the SMT industry right now, I see some very interesting things going on with shifts in production locations, ease of manufacturing, and intellectual property (IP) protection. OEMs are bringing production back to the U.S. in greater numbers—some even back to Mexico. A significant driver of this over the past year has been the tariffs. For the majority of OEMs I speak with, it’s becoming clear how manufacturing in China is affecting their bottom line.

View Story

The Mannifest: Custom Reflow Ovens and Curing

08-20-2019

It seems that a lot of companies in today’s market are buying specialized ovens for curing. Did you know that most SMT reflow ovens can be modified by the manufacturer (and quite easily too) for curing applications? In most cases, these ovens will also still work for SMT reflow, eliminating the need to waste precious floor space on a second oven.

View Story

The Mannifest: Common Machine Errors and How to Avoid Them

07-22-2019

When it comes to the quality of SMT boards you produce, it can be difficult to know where to begin and what features various PCBA machines offer are most important.

View Story

The Mannifest: First Time With In-house SMT Assembly? Start With a Great Design

06-26-2019

One of the best ways to eliminate possible production issues when you handle your SMT work in-house is to ensure that you have a manufacturable design. Thus, there are several factors to keep in mind when reviewing your designs before bringing your production in-house or starting your first run of in-house prototypes.

View Story

Managing Your Double-sided Assemblies

05-01-2019

Using a double-sided board in your finished application allows you to produce more complex circuits while saving space, offering an array of benefits for high-tech applications and electronics. But challenges to double-sided board implementation are plenty, including placement questions, solder processing challenges, and heat dissipation. Read on why planning out a double-sided assembly is not substantially different from handling a single-sided board assembly.

View Story

The Mannifest: When Is It the Right Time to Automate?

04-08-2019

How can you increase your production to keep up with rising demand while keeping your operating costs reasonable? While it can be tempting to go all-in and convert your entire production process to a fully automated assembly line, it may be more advantageous to start with low-volume assembly and convert more gradually.

View Story
Copyright © 2021 I-Connect007. All rights reserved.