Why products as a service make so much sense for manufacturers

04.07.2018

For most manufacturers, replacing equipment is a fact of factory life. Whether to retire old, inefficient machines for the latest tech or to invest in machines capable of making new products, a one-off purchase will never suffice. No matter how cutting-edge and impressive your machinery, there will come a time where new equipment will become essential in driving efficiency and increasing output.  

However, with new equipment comes expense, and finding the money to invest in large-scale machinery can be a challenge. In fact, the substantial cost of factory or plant equipment can dramatically impact a company’s finances. While reliable machinery is the backbone of any manufacturing business, the need for new equipment creates a dilemma: to buy or not to buy, that is the question.  

On one hand, investing in new machinery will undoubtedly generate revenue. On the other, it could significantly drain your cash reserves in the short run.  

Fortunately, buying equipment isn’t the only option for manufacturers. Companies in need of new machinery can choose to lease manufacturing equipment and completely do away with the dilemma altogether. For most businesses in this sector, products as a service makes good fiscal sense and brings a number of benefits: 

Increasing business agility 

In an era characterised by vast technological advancement, today’s trends are tomorrow’s antiques. Even within the manufacturing sphere alone, advanced technologies such as 3D printing and robotics are changing the face of the modern factory, and it isn’t t about to stop now. As consumer demands shift and change, so too does the technology used to mass-produce particular items: committing financially to a specific piece of equipment will prove beneficial in the short-term, but it’s only a matter of time until it becomes outdated.  

Leasing your equipment allows you to stay nimble; it creates an opportunity to regularly upgrade your machinery in line with technological advancements thanks to its high resale value. Even the technology within 3D printers is progressing fast: risking your company’s financial stability just to have one of your own makes no sense considering it will soon need updating. Rather than putting your business on the brink every time you need new equipment, leasing it will enable you to keep ahead of the technological curve without threatening your finances.   

Preserving cash flow 

When it comes to refreshing your factory equipment, upfront capital investment can completely drain your cash reserves. Imagine having spent a significant chunk of money on a piece of machinery only to be faced with a great opportunity that you can no longer afford to pursue? By financing your equipment instead of buying it outright, you can stretch payments over a period of time, thus producing a positive cash flow immediately since the revenue increase will be greater than the payment for the machinery leased. In doing so, you preserve the business’ cash flow for those golden opportunities or unexpected emergencies.  

Flexibility in financing  

Products as a service provide the same benefits for small businesses as they do for larger companies - the only difference is the volume of equipment needed. So, while a small company will only need one or two pieces of equipment, a larger company will usually need a full assembly line of automated machinery. The flexibility of leasing means your business can structure financing either for a single piece of kit or a range of products worth millions of pounds. You can further choose a payment plan that reflects the revenue generated by the equipment, whether that be monthly, annually or seasonally.