Used Is the New "New"

Pharmaceutical Technology, Pharmaceutical Technology-11-02-2010, Volume 34, Issue 11

Used packaging equipment can be a cost-saving, time-saving alternative to new machines.

Companies that are sourcing packaging equipment shouldn't overlook used machines. These units typically cost 40–60% less than new devices and generally can be delivered more quickly, sometimes shipping the same day or the day after the order is placed.

Hallie Forcinio

Because of its lower cost and shorter lead time, used equipment is a particularly good choice when budgets are tight, quick turnaround is needed, and demand for the product is uncertain or seasonal. Used equipment also scores points for sustainability because it is reused instead of being scrapped.

However, if a project involves a unique product or package that requires highly customized equipment, it probably will require a new machine. Another situation in which a new machine might be the better choice is when advanced technology generates a lower total cost of ownership and rapid return on investment.

Interestingly enough, today's previously owned machines frequently are "used" in name only. The used equipment currently for sale often has never run in production because of changes in product demand or company focus. Sometimes it has never been installed.

Several companies specialize in selling used pharmaceutical packaging equipment and possess inventories of hundreds, if not thousands, of machines. Many of these dealers also sell processing equipment.

Used packaging machines also may be found online. Options include brokers such as EquipNet (Canton, MA) that act as the middleman between buyer and seller, and a packaging-equipment section on the eBay Stores website, hosted by eBay (San Jose, CA). In addition to examining the machines under consideration, it's important for personnel to research the history, background, service, and financing options of the used-equipment dealer.

The dealer should be reputable, established, and capable of offering various machines so that capabilities can be matched to applications without any bias toward a particular brand name or configuration. It's also helpful if the equipment is stored in a warehouse where it can be inspected and viewed in operation before it is shipped to its new home.

Howard Newman, president of Loeb Equipment (Chicago), a fifth-generation family-owned equipment dealer, recommends asking potential suppliers, "How long have you been at your current location? Do you own your warehouse? What is your return policy? What warranty do you offer?"

K.C. Christensen, founder of Kendell Equipment, now part of AEK Packaging Equipment, a subsidiary of Aaron Companies (Bensenville, IL), a used-equipment dealer, explains, "You want someone that can provide support if a problem arises. We have a global presence," he notes, "we can send a technician out or take the machine back."

In addition, purchasers should take a close look at the dealer's ability to retrofit and refurbish previously owned equipment. "A lot of people claim to do refurbishing, but don't necessarily have the resources to do it," says Dave Madden, vice-president of sales at The Frain Group (Franklin Park, IL), a 30-year-old used-equipment dealer that employs 30 technicians in its mechanical shop. "A [used equipment] company also should be able to provide documented evidence of successful projects," he adds.

Entire packaging lines sometimes are transplanted. This line from manufacturer IMA North America (Bristol, PA) was purchased by the original owner for an alcohol-based spray product that was never marketed. (IMAGE IS COURTESY OF LOEB EQUIPMENT)

Pharmaceutical packagers sourcing used equipment should match the machines to their applications and pay attention to many of the same elements they would consider when buying a new machine (e.g., run speed, efficiency, footprint, and electrical package). "Equipment should be evaluated on the basis of the desired outcome," advises Madden.

If the pharmaceutical packaging equipment under consideration actually ran in production, it's important to know what products and packaging materials were in contact with it. This information is crucial for primary packaging machines, but less crucial for secondary packaging machines.

Last, but not least, Newman recommends that companies double-check a machine's control system for compatibility with the other equipment on their lines. Because many pharmaceutical packaging lines are fully integrated today, some machines are configured to be controlled by other machines and therefore possess minimal on-board control capability.

Preparing equipment

Like Frain, AEK Packaging and Loeb Equipment dedicate a substantial amount of floor space to refurbishing. These dealers employ engineers and technicians who prepare the equipment for delivery and recondition it as necessary.

Equipment preparation varies, but typically involves a thorough cleaning; confirmation that mechanical, electrical, and computer systems are in good working order; and replacement of wear parts, which often are sourced from the original equipment manufacturer. If necessary, controls are upgraded and change parts crafted. In fact, "We have developed a global network of suppliers for controls and change parts," reports Christensen.

Looking a bit like a trade show, the warehouse floor at Loeb Equipment displays used packaging machines and entire packaging lines for prospective buyers' inspection. (IMAGE IS COURTESY OF LOEB EQUIPMENT)

Value-added services

Machines typically are supplied with complete documentation, including manuals and schematic drawings. Transactions also may include guarantees, warranties, and right-of-return agreements.

Some dealers provide acceptance testing, setup, and training. Line integration and aftermarket service also can be part of the vendor's package. However, postsale service typically requires a separate service agreement.

Deciding how to pay for a machine can involve almost as much thought as determining exactly which machine to buy. Options include cash payment, leasing, and renting. Each choice presents a different degree of flexibility. Likewise, each has advantages and disadvantages.

Cash payment results in full ownership, but it represents a capital expenditure and requires a capital budget. In most cases, accounting personnel must track depreciation for several years after the purchase.

Many used packaging machines such as this Pharmacarton Coding System from Nutec Systems (Lawrenceville, NJ) have not seen extensive operation. (PHOTO IS COURTESY OF AARON COMPANIES)

Leasing, either directly through the dealer or through a third-party company, spreads payments out during a specific term. At the end of the term, the equipment is returned or purchased for a price that reflects the lease payments.

Renting does not require a commitment of more than a month or two, therefore it provides the most flexibility. In addition, rental fees are considered as expenses, so equipment can be purchased without touching the capital budget. Thus, renting is particularly well-suited to addressing seasonal spikes in demand, product introductions, and contract packaging situations.

"Renting makes it possible to put a product on the market very fast and very economically," explains Christensen, noting that it also "provides the opportunity to test a machine before you commit." If the new product is not successful, the equipment can simply be returned. If the product succeeds, the rental can become a purchase. In that case, "we apply part of the rental [fees] to the purchase price," says Madden of Frain.

Managing surplus assets

Dealers that sell used packaging equipment are always looking to buy late-model systems that have been properly maintained. "We're probably offered 50 machines per day, but only pursue five to 10," says Christensen.

In addition to purchasing surplus assets directly, many dealers also offer asset-redeployment services. Frain, for example, consolidates and manages surplus assets using a three-tier process that includes purchasing assets for cash, marketing them on a consignment basis, and purchasing assets for credit toward a machine or service.

Hallie Forcinio is Pharmaceutical Technology's Packaging Forum editor, 4708 Morningside Drive, Cleveland, OH 44109, tel. 216.351.5824, fax 216.351.5684, editorhal@cs.com.