Not all CAPEX is created equal (pt 1)

When the axe needs to fall in a big way, industries like ours tend to look immediately towards the CAPEX budget. Why? Because it's normally the largest pool of discretionary spending that exists. 

And some of it isn't even that discretionary.

Not all CAPEX is created equal however, it generally falls into three or four distinct buckets fo spending.

1) Expansion and growth

2) Capital maintenance costs. replacements, refurbishments and so on.

3) Obsolescence spending. Spending to either take advantage of new technologies, or to counter the impact of the transition from old ones. (Obsolete parts are a good example of this.)


We all say that CAPEX is long term, but often we don't plan with this in mind. I don't mean planning the spending over the next (say) 4 years, that part is relatively easy. The hard part is being strategic enough to be able to avoid or put off spending until it is really necesary.

For example, instead of reacting to obsolescence issues now, why aren't we planning for obsolescence in the next 4 - 5 years time?

We are all experienced at this, we know that our vendors often upgrade and move away from the assets they sold us. (In an effort to up sell us of course) So why aren't we playing that game also?

You know they are going to walk away from parts for this pump unit, or this type of starter in the next three to four years - so stock up on parts while they are still cheap and available. Saves in the medium term and allows you to put off the spending until the equipment is actually no longer working.

Here's a quick tip - have you heard of Sparesfinder? I love the entire intention behind this program. It surged during the dot com era but has recently faded unfortunately into the background. it is a shame because it is a great idea. originated out of New Zealand, and is now run from the UK. This company is a great example of how an SaaS type model is being used within the asset management field, yet nobody is talking about it. (Why is that?)

One of the many things they do is to offer a virtual pool, where you can club together with others in your industry or further afield and list the inventory that you have no further use for.

The best part? You can also see the stock that other companies in the pool want to get rid of. This is a brilliant concept and one that could help (say) all water companies globally to beat out the obsolescence beast through finding hard to find parts.

Or even to counter some of the CAPEX spending that is requiredfor parts replacements and refurbishments.

The potential is great, I always wondered why this idea didn't take off quicker.

Over the next few days or so I will take a look at some other technologiues and techniques for optimizing CAPEX. 

The key though, as always, is to focus on waste and not on costs. if we do that then reduced costs will follow, and reduced performance (or increased risk) will not!