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In a recent survey, about 75% of SMT007 readers indicated that their organization uses a capital expenditure plan; about 25% do not have a planning process in place. Based on this information, the I-Connect007 Editorial Team reached out to Fane Friberg to discuss capital expenditure planning and execution.
With more than 35 years of experience in supply chain, operations, manufacturing, distribution, and sourcing, including small- to mid-size and Fortune 500 companies, Fane has proven success in supporting the development and execution of successful operational strategies. Fane’s expertise is in taking the strategic business plans and converting those to clear/concise tactical initiatives within manufacturing, logistics, and sourcing operations.
You speak of a standard operating procedure for capital expenditure planning. Can you give an overview of that concept?
Fane Friberg: Companies grow and change. Many times, with established companies, people within the organization have various methods that they used in the past for the CapEx process. To that end, it is critical that companies have a well-documented standard operating procedure for capital expenditure projects. This document should clearly define the necessary steps required from proposal to implementation of the project. It also helps correlate the relationship between the annual planning/budgeting process and the standard approval cycle for such capital expenditure submissions.
The complexity of the approval cycle can vary from organization to organization. For example, some organizations require a simple form completion consistent with the capital plan as part of the annual operating plan (AOP). Other organizations require multiple pitch meetings, multiple tollgates and package submissions, and a finalized formal CapEx approval binder (including specific elements) that are maintained/retained consistently, and responsibly manage the approval of large and long-term financial decisions. Whatever the process at your company, it will need to be clearly documented and followed.
We’ve heard you point out that the value and importance for the NDA in the CapEx planning process is often overlooked. How does that fit in?
Friberg: Since there are many times where the CapEx is part of a company’s fulfillment and go-to-market strategy, it becomes critical to have the nondisclosure agreement as part of the CapEx standard operating procedure (SOP.) Most companies have the NDA as part of their supply chain SOP; it should not be overlooked in the CapEx processes as well. This is because a capital expenditure is an important part of the supply chain sourcing and buying process. When capital equipment is thought of as a supply chain item, all the normal vendor authorizations make sense. It is generally good business practice to have an NDA any time you want to share something valuable about your company and/or business strategy. You want to make sure that the other party doesn’t use any of that disclosed information without your approval. This protects any information that is not widely known (new technology, new location, new distribution model, etc.)
An example of information that needs protection might be when a company is examining their overall fulfillment network and determines that there are too many distribution nodes away from the point-of-manufacture. It is critical that this information not move prematurely through the enterprise, as that could result in panic within the business, or the possibility that a key competitor gains knowledge about your execution strategy and can identify a competitive advantage within the market—costing you market share erosion.
To read this entire conversation, which appeared in the October 2021 issue of SMT007 Magazine, click here.