How to Select Capital Equipment

Tips for Building A Business Case to Meet Production Needs

Jul 27, 2009 Alicia Michelle Morgan

Capital equipment selection is necessary for meeting production demands and should include careful decision making.

Operating a business involves daily exercises of creating process improvements in people, resources and capital expenditures. A business operates through the execution efforts of people through the technology and development practices that help to get the job done. Equipment needs to be up to date and not on its way to being obsolete if a business is to meet its product delivery deadlines. Selecting capital equipment involves not just picking a particular a piece of equipment but having a full understanding of the capacity requirements that will successfully integrate the new system into the business.

Perform Equipment Analysis

Identifying capital needs should include an analysis of current equipment resource performance to determine where bottlenecks to productivity are occurring. Review maintenance costs for equipment to determine whether a new capital expenditure is more economically feasible than continuing to perform as is. Equipment does not last forever and ignoring indications that it is time to make an investment in new capital does not suddenly go away.

Research Different Equipment Vendors

The choice for purchasing capital equipment should include a comparison of vendors that meets the current equipment need. This decision should consider overall cost, system requirements, equipment features, facilities installations needs, computer technology and the availability of floor space. Also consider the lead time to delivery for the equipment because if the purchase is critical then it would require delivery sooner than an extended period of time.

Perform Return on Investment Analysis

Based on the costs of the equipment, installing it and training the workforce there needs to be a payback in the form of saving time, money or the resources for getting the job done. The rate of return formula is net profit after taxes divided by the total investment times one hundred percent.

Submit Request for Equipment Purchase to Department

The return on investment analysis should prove to be beneficial for justifying the costs of the purchase and expenses. It is also imperative that a detailed analysis of the benefits of the purchase will outweigh any potential production interrupts installation of the equipment may cause. Overall, a solid return on investment will most likely lead to the finance department authorizing a purchase request.

Place a Purchase Order for Equipment

The finance department approves the purchase request which authorizes the purchase order. The next step is to contact a buyer within the company to finalize the purchase order and release it to the vendor. Also, request a copy of the purchase order from the buyer for record keeping purposes.

Overall, selecting capital equipment is a major purchase that requires strategic decision making that will meet and or exceed the businesses production needs.

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