Strategies for Optimizing Capital Equipment Acquisition, Redployment and Disposal Investments
A key factor in maximizing return-on-investment in the lab is the ability to align the right scientific instruments, i.e., fixed lab assets, with science initiatives. Maintaining the right scientific instruments can help companies increase biological screening efficiency, shorten the drug development process, and meet milestone objectives.
Historically, pharmaceutical, biotechnology, and chemical companies have approached laboratory equipment acquisition and instrument utilization from a consumables perspective. They purchase the latest scientific instruments, utilize them productively while they depreciate, and then continue using them until age or disrepair renders them useless.
This “buy and hold” strategy creates considerable technology, productivity, and economic risk where time-to-market, patent protection, and other productivity factors may constrain earnings growth. The consumables mind-set often results in an aging installed base of scientific assets that are susceptible to underutilization, higher incidence of repair, and frequent downtime. To meet laboratory turnaround times, quality reviews, and sample throughput, companies are forced to buy new equipment, leaving the old equipment to either occupy valuable laboratory space or to incur significant warehousing costs.
In this environment of flat and contracting budgets, laboratory managers and procurement specialists are looking for novel ways to generate value by optimizing their laboratory equipment inventories and laboratory budgets. To mitigate the risks of an aging installed base, forwardlooking managers are turning to laboratory equipment life-cycle management (LCM) strategies to keep pace with laboratory throughput, sensitivity, and compliance demands.
LCM provides a structured process for holistically managing the installed base of laboratory equipment. From capital equipment acquisition through asset disposition, Figure 1 shows the steps involved in optimizing the technical, scientific, and economic resources along the “technology life cycle continuum.”
This article examines the steps for designing and implementing an effective LCM program and how such a program addresses the common scientific instrument challenges facing scientists and laboratory managers today.
Adopt lab equipment portfolio management techniques
Making certain that the right scientific instrument is in place to support key business objectives is the first step in LCM, and often the most difficult. Rapid technological change has made it increasingly challenging for companies to identify the most efficient, cost-effective scientific equipment for laboratory projects. As a consequence, many companies harbor an aging population of equipment that cannot interface with other equipment, threatening data throughput and other measures of project productivity.
For example, over the past 18 months, the major scientific instrument manufacturers introduced a new standard in chromatography instruments and columns. Ultra-high pressure liquid chromatography systems (UHPLC) improve the speed, resolution, and sensitivity of chromatographic separations up to ten times over traditional HPLC methods.
This presents a challenge along with an opportunity for laboratory executives and sourcing managers: How do analytical laboratories acquire and incorporate this leadingedge technology into their laboratories? Projects need to be justified and budgets allocated. For early discovery projects and leading-edge research, economics can be a barrier to entry. For quality analytical labs and regulated process development groups, the technology transfer and capital acquisition costs become the major hurdles. If a company followed an LCM strategy prior to UHPLC introduction, they would have planned the UHPLC acquisition strategy for leading-edge applications while anticipating cascading the existing HPLC technology to more routine applications in other areas of the laboratory organization.
LCM begins with portfolio management, a process that provides the framework to plan, align, and invest in technologies to drive maximum laboratory productivity, cost savings, and risk mitigation. To begin the process, a company inventories the current installed base by scientific instrument types, quantities, financial value, age, application criticality, and equipment utilization.
The current installed base can to be mapped against future project and scientific instrument forecasts. Once this is completed, the company can conduct an analysis of original equipment manufacturers’ (OEM) product improvements, project starts/terminations, and other factors that may technologically and/or financially impact the lab equipment portfolio.
The result of this portfolio analysis is useful life versus mechanical life technology profiles. The useful life technology profiles become the basis for developing a company’s technology migration strategy. They also become the basis for employing flexible asset disposition strategies to accommodate technology refresh—the systematic disposal or migration of existing equipment with new or improved scientific instruments. By reviewing the portfolio on a periodic basis, a company can validate or dismiss previous assumptions and adjust equipment and management plans accordingly.
Develop capital acquisition strategies
Building and maintaining a competitive equipment portfolio require a flexible acquisition strategy. Scientific instrument product life cycles are shortening as OEMs respond to researchers’ requirements for faster and greater throughput and higher sensitivity levels. The product life cycle for mass spectrometers, DNA sequencers, laboratory automation platforms, and other complex scientific instruments used to be five to 10 years. Now, that statistic is three to seven years and often shorter. After an OEM product introduction, their instruments frequently remain leading-edge for only 12 to 24 months.
Because capital budgets do not always keep pace with technological change, the “buy and hold” strategy employed by most laboratory managers poses a serious problem in the face of shorter equipment life cycles and long depreciation schedules. Witness the recent pace of genomic analysis technology advances.
For example, a lab employing a five-year-old workflow for genomics experiments would be woefully behind in the race to discover biomarkers for cancer or autism, even though the tools are still performing as designed. These missed scientific opportunities also put the lab behind in the race for funding, thus jeopardizing future work.
The second step in the LCM approach is to develop an acquisition plan that allows companies to maintain the levels of instrumentation needed for various functions while setting the stage for a smooth technology migration when appropriate. Complementing the yearly budgeting cycle, an effective LCM program provides laboratory managers with additional ways to acquire lab equipment.
The operating lease option, where technology risk is transferred to the lessor, enables a company to use instrumentation for only as long as it suits R&D needs. This can save an organization on average 10 to 20 percent off the original equipment cost while freeing up capital. There are other benefits as well in relation to productivity. For example, a major pharmaceutical company that originally planned to purchase four MS units for a short-term project opted to finance 12 systems instead. The result: By having access to more technology, the company reduced the project timeframe from four to two years and was able to return the equipment it no longer required upon completion.
Adopt equipment redeployment and disposal strategies that reduce costs
Although many companies would like to quickly migrate to the latest scientific instruments, they have no effective way of disposing of their current scientific instruments or recouping their value. Tracking, redeploying, and disposing of assets based on useful life profiles help companies better manage both the effectiveness of scientific instruments in supporting organizational goals and instrument cost. In fact, the Investment Recovery Association (Kansas City, MO) states that individual companies may save as much as $150 million per year through effective asset management recovery services.
Solid LCM programs include an asset management recovery component. The program should gauge equipment acquisition and disposal timing based on utilization, functionality, new equipment introductions, used equipment values, and environmental factors. An understanding of these factors provides guidelines for redeployment and proactive timeframes for disposal to eliminate the unnecessary costs of underutilized or abandoned assets.
There are some instances, however, when holding on to older assets can be effective, but this requires a sound redeployment strategy. For example, an instrument no longer suitable for R&D applications demanding ultra highsensitivity technology may be ideally suited for use in an organization’s QA/ QC department. The key to the redeployment strategy is having a sound understanding of the organization’s scientific instrument assets and being able to align them with business goals.
Technology refresh—Ensure that the equipment portfolio has the flexibility to migrate within and across technologies
Research requirements can change from day to day, depending on project longevity. Scientists and laboratory managers are in a continuous struggle to align existing scientific instruments to new projects. Companies that do not have the capability to migrate to other technologies during and after the useful life of their technologies are finding themselves at a competitive disadvantage.
Consider two different generic pharmaceutical companies: Company A standardized on analytical instrumentation for small molecule production and Abbreviated New Drug Application (ANDA) submissions. They own and use lab equipment over its entire mechanical life.
Two years earlier, Company B executives anticipated the changing market conditions for biologic generics, e.g., off-patent opportunities and the debate in Congress. They developed an LCM program, which included a technology refresh strategy. Recently, Company B acquired time-of-flight (TOF) mass spectrometers to develop analytical methods for generic biologic approval. They traded in or sold single quadrupole LC mass spectrometers to the OEM, reducing the purchase price of the TOF acquisition.
Organizations like Company A that attempt to conduct today’s business on yesterday’s scientific instruments quickly find themselves losing their competitive edge. Through equipment acquisition and disposal strategies, LCM helps companies regain this edge by enabling them to migrate to scientific instruments needed for new R&D requirements and emerging projects instead of force-fitting existing scientific instruments.
The rapid rate of scientific instrument advancement will continue for the foreseeable future, and companies will continue to be challenged to meet or exceed laboratory productivity levels while managing their scientific instrument costs. Taking these first steps toward implementing an LCM program will enable pharmaceutical, biotechnology, and chemical companies to optimize scientific instrument investments and performance, while at the same time increasing productivity and maintaining flexibility in supporting scientific projects.