As consumer-packaged goods (CPG) companies continue to automate their production, their use of processing and packaging equipment is changing.
Typically, the options for sourcing packaging and processing equipment were limited to purchasing a new piece of equipment or finding a used piece of equipment through secondary markets. In most cases, new equipment was ordered directly from the Original Equipment Manufacturer (OEM). Sourcing new equipment usually requires waiting long lead times. This forced CPGs to scour the used equipment market. CPGs learned that used equipment has the “buyer beware” stigma because it is unknown whether the equipment they found would be reliable and could be deployed immediately. In many cases used equipment requires the electronics to be replaced, requires new parts, or needed technicians to work on it to bring it into working condition.
What’s driving the change?
PMMI, The Association for Packaging and Processing Technologies, an industry trade group, estimates that 80-95% of new products fail within their first year. Specifically, 85% of new CPG products fail to survive more than 12 months after launch. This figure highlights one of the challenges and risks associated with new product development in the CPG industry. CPGs have realized it’s difficult to justify buying equipment to use with new products.
Another factor is the temporary need to scale production. Seasonal production demands, testing of new products, and short-term contracts all drive the need to be able to scale production for a limited time period.
Equipment failure is certainly another top driver for acquiring additional equipment. In many cases companies do not have CAPEX allocated to acquire additional equipment.
Why Renting Equipment is Rising in Popularity
In all these scenarios, the rationale of acquiring equipment permanently is difficult to justify. CPGs are turning to renting their processing and packaging equipment instead of purchasing for these common scenarios.
Another benefit of renting equipment is that most operations and production professionals face budget limitations for new capital expenditures. There is no capital expenditure impact when equipment is rented. Expensing the monthly rental fee is easier for most companies to get approved.
Renting also provides flexibility. CPGs can use the equipment for as long or as little as they need it. Therefore, renting is an ideal option for the short-term production needs discussed above.
Many companies are now renting equipment to keep their production lines running while they wait the long lead times for their new equipment to arrive. The additional production capability easily justifies the investment.
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