To Contract or Purchase: Is Converting Equipment Worth the Investment?

The Decision Making Process

Most production facilities start off contracting all of their converting needs at some stage of the production process. This approach allows businesses to focus on core activities while leveraging the expertise and advanced equipment of converting contractors. By initially outsourcing for your converting needs, you will gain valuable insights into your production requirements, volume demands, and costs without having to invest in machinery.

As operations scale and production volumes become more predictable, businesses can conduct a detailed analysis to weigh the benefits of purchasing converting equipment against outsourcing. For this analysis, there are a number of factors to evaluate.

Elements to Consider

Here are some factors to consider when deciding whether purchasing converting equipment or contract converting makes sense for your business:

Consistency

If converting is an ongoing part of your production process, investing in your own equipment could be advantageous. Consistency typically leads to cost savings in the long term due to predictable production schedules and economies of scale.

Cost

Consider if your budget can support an up-front capital investment and ongoing expenses. When evaluating costs, there are a number of points to consider, including:

• Labor. Transitioning to in-house converting means hiring and training skilled operators to manage and maintain the machinery.
• Purchase price. Businesses must account for the entire cost to buy ready-made machinery or build custom converting equipment, which also includes expenses related to installation and initial setup.
• Overhead. Adding equipment to your production floor requires labor, utilities, and maintenance to run properly, whereas contracting typically involves a set fee for service. A predictable fee structure makes it easier for businesses to budget and control operating expenses based on their production volume.
• Long-term vs. short-term cost savings. In the short term, contracting provides immediate savings by eliminating the need for large capital investments and reducing the overhead costs associated with staffing and maintenance. As production volumes increase, the long-term cost savings of owning converting equipment can become significant.

Space Considerations

You’ll also need to consider whether your facility has the footprint to bring converting machinery in-house. The converting equipment you require can oftentimes be large and require a significant amount of floor space. Understanding the space requirements can often help in the decision making process.

Logistics

Evaluating your current logistics infrastructure is essential when deciding to contract converting services. This includes assessing whether your business is equipped to ship unfinished raw materials to the converting facility and receive converted goods. Factors to consider include the reliability of your transportation network, the efficiency of your warehousing and inventory management systems, and the capability to handle lead times and potential delays. You may need to invest in your logistics infrastructure to make outsourcing feasible.

Staffing

Another critical factor is whether your business has the staff to operate the machinery. Operating and maintaining converting equipment demands a specific skill set, which may not currently exist within your workforce. You will need to determine if your existing staff has capacity to take on new responsibilities and can be trained to use converting equipment. If not, new hires or outsourcing may be necessary.

Production Needs

Understanding whether the conversion process is critical to upstream or downstream manufacturing is pivotal in determining the overall impact on your production cycle. If converting is integral to upstream activities, any delays or inefficiencies can lead to bottlenecks and slow down the entire manufacturing operation.

Conversely, if converting occurs downstream, it plays a significant role in the final stages of product development and packaging. Here, the emphasis is on ensuring that the converted materials meet quality standards and are delivered on schedule.

When to Use a Contractor vs. purchasing

Contracting for your converting needs provides you with flexibility and scalability without a substantial initial investment, making it ideal for businesses with unpredictable or variable production demands.

Purchasing converting equipment represents a considerable financial commitment. The initial capital investment required for high-quality machinery can be significant; these costs include not only the purchase price of the equipment but also the expenses related to installation, maintenance, and potential downtime during setup and training periods.

In addition, the installation of converting machinery may require facility upgrades, further adding to your initial investment. If your company has fluctuating production needs, this investment may not make sense; contract converting is likely a better fit.

The Bottom Line

The decision between in-house converting and contracting hinges on a number of factors, including an in-depth analysis of financial implications, space availability, logistics capabilities, staffing, and production needs. At Pinnacle Converting, our team can help you evaluate your needs and find the best solution for you. Not only are we a full-service shop that builds standard and custom converting equipment, we also provide contract converting services; no matter what your needs are, we have you covered.

Contact Pinnacle today to learn more about our converting equipment and services.