Focus on CAPEX

CAPEX is short for Capital Expenditure, or what we call a capital investment in Danish.

Strategic work on measuring and streamlining production also provides an opportunity to avoid investments if they are not strictly necessary.

The problem with buying an extra machine for production is that it costs money and, of course, it has to be written off.

What if, instead, production can be made more efficient so that more items can be delivered with the existing equipment? After all, this is a dream scenario, because revenues can be increased without taking capital investment to the next level.

Avoid unnecessary risk

There’s another side to the same thing. It may be that a customer would like to purchase some products that make it necessary to increase productivity.

It may, in isolation, look like a good idea to buy a new machine to increase production.

It is written off, perhaps over seven years, and month by month it increases profits more than depreciation.

Now it happens that the customer goes bankrupt after two years. The income from the additional production disappears, but the machine is not written off until five years later.

The better way

If the machine is not absolutely necessary, it is not a good idea to go to the bank and borrow for new capital investments.

This results in fewer depreciation and better use of existing capacity, and it is cheaper to invest in data metrics with Opticloud. The collected data can be used to understand waste in production. This will allow more to be delivered, and perhaps so much can be delivered that the investment is not necessary.

A related effect is that everyone in the organization learns that we only invest after we have optimized. It is more of a job satisfaction to know that we are working wisely, and, moreover, it is also good for the environment. Waste causes should always be eliminated if one can, and therefore there is a strong correlation between efficient production, green thinking and low CAPEX.

Capital expenditure

Source: Wikipedia

Capital expenditure
Capital expenditure or capital expense is the money an organization or corporate entity spends to buy, maintain, or improve its fixed assets, such as buildings, vehicles, equipment, or land. It is considered a capital expenditure when the asset is newly purchased or when money is used towards extending the useful life of an existing asset, such as repairing the roof.

Source: Wikipedia