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The challenge of owning equipment is you don’t know when your equipment would wear out. Once the equipment is purchased and used, it eventually begins to suffer mechanical problems. At some point, it reaches the end of its useful life and must be replaced. That is the reason why Axis Capital Group, a company which sells and rents capital equipment across Asia with its head office located near the ports of Singapore and has now expanded to Jakarta, Indonesia exists.
Advertising aside, the fact is once a machine reaches the end of its useful life, it must be replaced. It may be hurtful to the owner, both because of its sentimental value and the price to pay to purchase a new one. Of course, there will always be the option to rent your equipment to save you a few dollars and a thousand worth of maintenance. The list for the advantage of renting goes on and on but the main focus for now is knowing the life expectancy of a machine.
Equipment life can be reviewed in three mathematical definitions: physical life, profit life and economic life. The concepts of inflation, deprecation, investment, maintenance and repairs, downtime and obsolesce are all integral part to replacement analysis.
With the assistance of local manufacturers in Jakarta, we are able to identify the factors on heavy construction equipment’s life expectancy.
1. Physical Life
Physical life is at the age which the machine is worn out and can no longer be reliable. At this point, it is usually abandoned or scrapped. As the construction equipment ages, the cost for maintenance increases. The length of the piece of equipment’s physical life and the rate by which its operating costs are affected by the care it receives when it is in use, the nature of job it is doing and the maintenance it receives. The machine may also have some complaints of its own on how it is being handled.
2. Profit Life
This is the life over which the equipment can profit. The retention beyond this point will create an operating loss. This essentially is the point where the machine spends more time in the repair shop than on the project site. Increasingly costly repairs exacerbate profit life as major components wear out and need to be replaced.
3. Economic Life
This kind of equipment life equates to the time period that maximizes profits over the equipment’s life. Owners constantly strive to maximize profit while minimizing the cost of production. Selecting economic life span as the metric to make the equipment replacement decision is in fact optimizing production with respect to profit.