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Capital Expenditures – How to reach your goal

Companies often miss budget and specification deadlines when procuring capital goods. Integrating procurement in planning and organization early on can make it possible to meet these goals, and also, to beat them.

It is not only major public projects such as Berlin Airport or Stuttgart 21 that are affected by the phenomenon of a remarkable waste of money, time and again, private business has problems with investment projects. This is because, in many companies, particularly mid-sized companies, CAPEX, as opposed to OPEX, is not professionally managed, to the considerable detriment of anticipated profit and operating results. This is because, in many companies, particularly mid-sized companies, CAPEX, as opposed to OPEX, is not professionally managed, to the considerable detriment of anticipated profit and operating results.

Capital Expenditures Rising Steadily

CAPEX expenditure is many times greater than expected, and is continuing to grow. CAPEX requirements of the 11,000 largest companies in the world rose from USD 1 trillion to 3 trillion from 2002 to 2015. That represents an average increase of 8.7 percent per annum.

Capital-intensive industries, however, are way ahead of these CAPEX investment figures. Electricity suppliers come top of the CAPEX board, with an average of 13 percent of their turnover, closely followed by oil and gas companies, metal production, and mechanical engineering, with an average of 6.3 percent. But CAPEX also represents a significant share in all other industries, and can be essential for success.

Capital Expenditures are divided into three Categories

Since CAPEX requirements occur in many product groups, their characteristics and complexities are very different.

1. Day-to-Day CAPEX

Ongoing, day-to-day CAPEX for business operating expenses. Examples include IT (e.g. a server or high-cost software system), logistics and marketing

2. Large, recurring CAPEX

This includes investment in machinery in industry, or store fittings in retail

3. Project Capex

One-off CAPEX investment in buildings or plant construction

 

The CAPEX Phenomenon

It is striking that OPEX procurement has achieved a high degree of maturity in recent years and is often structured in a very professional way. Expenditure on CAPEX requirements, though, is often only managed superficially in terms of procurement. This may result in companies negotiating intensively for OPEX requirements, while sometimes giving away millions on Capital Expenditures. You could even dare say that the price of every paper clip is haggled over, while the responsibilities of procurement e.g. when determining complex requirements such as buildings, machinery, or IT systems, rarely extend to using total cost of ownership (TCO).

Read the full article in our digital magazine and receive detailed information, including industry-specific information:

  • Challenges with Capital Expenditures
  • The Role of Purchasing
  • Use cases
  • Expert interviews in mechanical and plant engineering, in trade, in the construction industry, in the energy sector

 

Here you can get our digital magazine including the full article for free.

Further topics in the magazine:

  • The CAPEX Phenomenon
    Achievement of goals through active use of procurement competencies
  • Risk Management
    Political turmoil threatens Global Supply Chains
  • Company News
    INVERTO moves closer to customers in European Markets

 

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