Capital planning and implementation is often managed under the operations and supply chain department, with a focus on solving the challenges of an aging operations infrastructure whilst achieving todays operational goals.
This is the most common approach taken by most companies and yet it doesn’t meet tomorrow’s challenges or support the delivery of the business objectives.
Successful businesses clearly balance the needs of today’s production demands to replace and improve existing production lines with the need to move forward in line with the direction of the business. They do this by ensuring a balanced investment, that addresses existing production needs and moves the operational capability in the direction of the business roadmap.
For this to be achieved, the team prioritising the capital budget must have clear visibility and understanding of both the technical short term requirements and the changes needed to deliver the business strategy. Therefore, the development of a capital plan needs to be a combination of approaches; A bottom up approach is ideal for identifying the improvements necessary for the current infrastructure.
However, a top down process is best to define the capability changes needed to meet business direction for commercial and R&D projects.
The starting point for the bottom up process is having clear visibility of existing capital projects, overlaying the site needs for end of life replacement, efficiency, quality and safety improvements.
A top down approach starts with the business strategy and considers business direction, overall brand vision and long term commercial objectives to meet future demands of the supply chain. This should also identify any strategic projects, including future demands from commercial and R&D with the ability to programme these over the appropriate timescale.
Capital investment is all about making choices and compromises, it’s as much about what eliminating as it is about investing and an ideal ‘wish list’ would have a realistic view on deliverable benefits whilst allowing cross-functional prioritisation.
The final approved budget needs to address both long and short term needs across the breadth of the business, IT to marketing & operations to sales. Good communication of both the result and the process will ensure company-wide alignment of how the plan helps to meet the business objective.
Businesses need to look at the bigger picture with fresh insights to identify risks and opportunities for a multi-year plan, or at least take a step forward in the right direction.
Scott Varker, Director; Pollen Asset Advisory
First published in Inside FMCG: