M. Ferrara & Sons - News

For most manufacturers in the Northeast, news of an impending recession is old news. Typical of recessions of the past, New England has already felt the impact of the recent slowdown. Things seemed to have bottomed out, but the ensuing lull in manufacturing has led to an intensification of what is always an interesting topic, even in good times. That topic is whether to invest in new technology or just hold on and wait for business to spring back before investing in even more capacity.

In an expanding economy, most healthy manufacturing concerns operate at or close to maximum capacity. Decisions to expand capacity can often end up based on how expediently additional machines can be acquired and put into production. When things get busy, this often leads to a tiered technological environment, with the new high production machines at the forefront and the older technology taking up the slack as orders increase.

At some point, machines become obsolete. 30 years ago, most types of machinery lapsed into obsolescence over a fairly long period of time. This meant that a very active secondary market could exist for machines. Today, however, it is far more likely that a machine that is 10 years old may well be functionally in very serviceable condition, but from a production standpoint you may be unable to make money with it. This has been due primarily to the brisk pace of technological advancement that has taken place in industrial controls, and manufacturing materials.

The potential productivity gains when they can be realized, can put a busy shop at a decisive advantage over their less innovative competitors. But there are also potential pitfalls as well.

The most obvious disadvantage is the dissipation of that productivity advantage when things slow down. Now the company has invested in a more expensive over-capacity that may put them in a less competitive position over a protracted downturn due to the higher carrying costs of owning idle cutting-edge technology. These companies may be doubly penalized when business picks back up, if a new generation of machines has come along in the meantime.

Even if the market place remains dynamic, the amount of time required to depreciate a machine is sometimes far greater than the practical usefulness of the machine. This can put contract manufacturers who invest in large blocks of new technology at a disadvantage over those who stagger their purchases because, although the initial gains are greater, the long term risk is that of losing contracts because you couldn't depreciate your production equipment fast enough to reinvest in new machines.

For the manufacturing executive, this past year has been a stressful one. In an economic slowdown even a concept as intuitive as obsolescence can become blurry. As always there are few generic answers that can be applied to an individual industry's situation other than the truism that those companies poised to come out of the recession strong, will most likely be the leaders of the next expansion.