Does it really have to be new?
If they could afford it, most people would like to drive a new car. Managers are no different. They instinctively justify buying new machines on the grounds that the old ones need a lot of maintenance. But in my experience, that argument is deeply flawed. Equipment manufacturers in one industry I’ve studied, for example, routinely spend millions of dollars on new machines years earlier than they need to. In most cases, the overall cost (including the cost of breakdowns) is 30% to 40% lower if a company continues servicing an existing machine for five more years instead of buying a new one. In order to fight impulsive acquisitions of new machinery, companies should require unit managers to run the numbers on all alternative investment options open to them—including maintaining the existing assets or buying used ones. Time after time, managers will go no further than an analysis of the economics of purchasing the new machine. But even if those economics are sound, there’s usually a cheaper alternative to buying new.