As businesses update their production machinery, they are left with surplus MRO and spare parts no longer needed for operations. This surplus inventory often represents millions of dollars of initial investment, so finding an effective method of recovering some of that value is important.
The challenge in selling MRO and spare parts lies in the fact that it is difficult to find a buyer willing to pay a fair value for the entire list of mixed spare parts. They key to recovering maximum value is to break the list down into manageable categories and attempt to find buyers that specialize in specific categories. Unfortunately, not only is this a laborious process, but its also discouraging to sellers who wish to recover value quickly. The good news is that there are a significant number of buyers in the second market that purchase and resell MRO and spare parts as their core business.
This blog post will take you through some options to help you liquidate MRO and surplus parts. Understanding the value for MRO parts and selecting the proper sales format is key to selling your parts quickly and for the most value.
Understand Book Value vs. Liquidation Value
The first consideration sellers must understand when selling surplus MRO parts is the difference between book value and liquidation value. Most businesses maintain a log of book values for their spare parts in their financial system. This book value is comprised of what they originally paid for these parts, plus any maintenance and storage costs to keep these parts in inventory.
A huge obstacle for sellers is the realization that liquidation value for surplus MRO is typically 5-15% of book value. In some instances, it can be as high as 50% of book value, but it depends on the parts. This might seem very low initially. However, understand the large majority of spare parts are machine or operation specific and therefore cannot be easily resold. Once you grasp this concept, the number starts to make sense.
Consider the alternative. Holding onto parts on your shelves will only lead to their continued depreciation and them taking up valuable shop space. Lastly, something to remember if you are selling equipment on a liquidation marketplace is that you are foregoing top price for the speed of sale. Valuing your items too highly is a good way of being passed on by buyers.
Selecting a Sales Format
Once you have reviewed and understood pricing, it is time to determine how you are going to sell your surplus MRO and spare parts. Which avenue you choose depends largely on how much time you have and how much personal effort you want to put into the sale. Here are the four formats you can use.
Private Treaty Sale
A private treaty sale is great for those who like to be heavily involved in the selling process. You have complete control over the process, choosing where and what to sell. If enough people are looking for your parts and are willing to do the proper research, the sale can be quick and effective. However, selling this way takes a certain amount of luck.
While private treaty sales may work for some applications, it is far from the most efficient way to sell MRO parts. That is because the primary challenge here is finding a buyer. Typically, you would have to find buyers for each category of equipment you are trying to sell. Depending on your network, this could take a long time. This is far from ideal for a business looking to recover capital quickly.
The next issue with a private treaty sale is the investment of resources. Arranging inspections and negotiations take considerable time and effort, especially when dealing with multiple buyers. If you are listing with a trade publication to sell your item, the longer your list remains active the more money you have to pay. For more on private treaty sales, please visit What is a "sale by private treaty"?
Choosing an equipment broker is ideal for convenience. Instead of relying on your network, with a broker you get access to a large number of contacts. These professionals have spent years building a network of contacts that they will use to sell your parts. Brokers will manage all aspects of the negotiation process, but you still need to manage inspections.
The issue with equipment brokers is that their commissions can be quite high. Also, it can be a lengthy process while the broker markets your equipment. For a business that is looking to recover the most amount of capital in the shortest amount of time, this is not ideal either.
Unreserved Online Auctions
If you're looking for the fastest way to sell your equipment, unreserved online auctions are the best method. Auctions can attract a large number of buyers, and can often start competitive bidding wars. If you choose an online auction site with a large enough reach, you have the potential to attract many industrial buyers. On such sites, buyers know their direct competitors could be involved in the auction and may bid more aggressively as a result. Thus, the chances of selling your equipment for a decent price in a relatively quick time frame is increased exponentially.
However, as with any selling method, there are some caveats to consider. First, the success of your parts at an unreserved online auction depends heavily on demand for them. Because such actions are driven solely by demand, unpopular items can go for much less than you'd like or be completely passed on. Also, because there are no reserves, you cannot guarantee the final selling price. That's why it's important to do your research beforehand. If you are trying to decide on an online marketplace to sell your items, please visit 4 Things To Consider When Selecting An Online Marketplace.
Fixed Price Liquidations
Lastly, you have the option of selling your items in a fixed priced liquidation. This is where you list your offering for your asking price (typically very close to the liquidation price to entice buyers). Unlike with unreserved online auctions, these have no time frame, so it's best to use these if you are not in a rush. These liquidations are also fantastic for specialized equipment, as in the case with certain MRO equipment. Here, you simply set a price that you'd like to sell for and wait for a potential buyer to make their offer.
As you have seen, there are several considerations when choosing to sell your used MRO equipment and spare parts. Although the task may seem daunting at first, the experience can be an education alone and can help you recover capital for your business. Understanding the difference between book and liquidation value, as well as choosing the right sales format to serve your needs, is of vital importance.
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