Companies that want to recover their investment in equipment assets are better positioned if they have a comprehensive plan in place before the surplus is evident. Many companies do not want to spend time or resources thinking about surplus or idle equipment. While some companies have in-depth internal investment recovery programs outlining the management of equipment assets and make their staff aware of these policies, many companies lack such a formal infrastructure. In other cases, companies with surplus management programs in place have staff with little to no awareness that the program exists throughout the organization. Whether a company has an internal capital management program or lacks one altogether, it is critical to engage a strategic partner who can provide a full suite of investment recovery services to maximize the recovered value and minimize the time required for recovery.
Strategies for managing surplus equipment differ depending on the level of involvement of internal personnel and the degree to which these services are outsourced. In most cases, except in the case of significant restructuring, most companies deprioritize surplus equipment management assets. This is not a criticism –– drug and API manufacturers should be focused on efficiently manufacturing quality products, not necessarily on their surplus equipment sales.
The Risks of an Absent Investment Recovery Program
Many items of equipment used within pharma and specialty chemical production (such as API manufacturing) are controlled under export laws and by regulatory bodies. For example, the U.S. Drug Enforcement Agency (DEA) regulates domestic and import/export transactions of certain pharmaceutical manufacturing equipment, in addition to drug products. Canada regulates export transactions similarly to the United States – Health Canada regulates certain equipment transactions as well, especially if the equipment has been imported. Companies without a program to manage how, to where, and to whom surplus equipment is being sold should assume that they are not in compliance and most likely ignorant of equipment regulations.
A company without a policy to manage and dispose of surplus equipment is at risk of fraud — or at least lost property or opportunity. At times, the equipment disposal is left to contractors who work in the facility; they may keep the funds after the equipment has been sold for scrap or to dealers. In the worst cases, someone inside the organization is selling the equipment without authority or oversight at a cost for the company. Even assets that are accounted for, but go unused end up taking up valuable space in production, finished product warehouses, or in a leased, off-site facility where assets are subject to damage and neglect.
How much capital is being wasted to store unused, idle equipment? If an item has been sold or otherwise disposed of in an unmanaged manner, does it remain on capital asset lists? This could impact the amount of personal property taxes being paid, depreciation, and other income statement and balance sheet items. Additionally, if the equipment is not properly removed from a plant maintenance program, spare parts can be leftover from equipment that has already been redeployed or liquidated and might be stored unnecessarily.
Partnering for Surplus Asset Management
In surplus asset management, a connection to the market and a network of buyers and suppliers is key. Federal Equipment Company has decades of experience buying and selling used equipment, and that experience informs what we will pay, as a dealer, for our inventory and what end-users will pay. This expertise allows us to fairly evaluate and predict the eventual sale price and compare that price with the costs of removal, allowing our clients to make an educated decision regarding surplus equipment prices. We also recommend sales channels for each type of asset class –– some equipment generates a fast return in an auction format, but this is not applicable to all types of equipment.
Selling to the End-User
We focus on selling to end-users because, instead of speculating on the equipment’s potential value for resale, they need the equipment for a specific project. Additionally, we understand that the capital equipment buyer doesn’t necessarily buy the same equipment year over year; their needs are constantly changing, and we have to keep them informed of our inventory. We are continually updating our global network of active buyers –– we add new registrations daily, issue thousands of quotes monthly, and we participate in auctions regularly to both buy and sell inventory.
Auctions vs. Consignment Sales
The actual item, the goal of the program, and its potential usage determine the best channel to sell surplus equipment. When comparing auctions and consignment sales, what matters is the goal of the program or project and whether time or return is more important. If the goal is a quick disposition of the assets, an auction will certainly achieve that goal; however, there is always a risk that the equipment will sell below its value or not at all. Not every asset class lends itself to auction-type sales. Some equipment may require a longer sales cycle because of its type, technical complexity, prior use, or several other factors. In these cases, the consignment approach may require more time to complete, but it will typically generate a higher return over the long term.
Federal Equipment Company customizes programs to fit our clients, we don’t employ a one-size-fits-all approach. We offer a range of services through our investment recovery programs from cash-purchases through organization-wide investment recovery programs including solutions for equipment removal and storage. We are experts in equipment, rigging and removal, transportation and logistics, and storage of inventory for both internal redeployments and external sales. We offer our customers a basic cost evaluation (removal, shipping, and (if applicable) storage) against potential sales value. We also offer full certified appraisals suitable for financial lending and business valuations. Our sales services include equipment testing and operational checks, validated cleaning and decontamination services, and, for some types of equipment (primarily solid dose manufacturing), training and troubleshooting.
Last year, we helped our clients save millions in new equipment purchases by redeploying assets already available within our network. This value reflects purchase price savings alone –– there are also valuable lead-time savings and sustainability initiatives that have benefitted our customers. We are well respected in the industry and work with strategic partners like Pfizer and BASF on highly customized programs. Our customers have the opportunity to sort and discover equipment available within their network, connect, and transfer equipment, and we help with the physical movement by managing the transportation and logistics on behalf of clients.