During some recent blog reading, I was spurred to think about a past situation when a company I worked for was buying new equipment and how WRONG this decision was.
I had been with the company for about four weeks when I heard about a capital expenditure my director had just approved to buy nine more of a patented machine. My company owned the patent. That would give us a total of 99 of these machines.
First question I asked, “Why are we buying more of these machines?”
The response was a typical one, “We they need more capacity because we are meeting the demand.”
I didn’t ask anymore questions at that point. I decided to go and see for myself. This was easy because the corporate offices we were in was part of the main manufacturing building. I had to walk about 100 yards.
During my observations I found two things:
- The overall OEE of the 90 machines was around 35-40% when it was running.
- At anytime I never saw more than 50 of the 90 machines running. This was because we never had enough people to run all the machines.
After a few hours of direct observation, it was clear there was no understanding of what was really going on.
First, attack changeovers and downtime to get the OEE of the machine up to the 75% range.
Second, why buy more machines if we can’t staff them?!
By my calculations, if the OEE was raised to the 75% range, not only would we not have to buy more machines we could get ride of about 20-25 machines we already had. That would mean our current staffing would be pretty close to what we needed.
I presented this to my new boss and the director, but by this time it was too late. The money had been cut and were pretty much crated and on the road to our facility.
This is why companies should question any new capital expenditures. Companies should be maintaining and using what they have first. The OEE should be at least 70% if not higher before considering adding more capacity through spending.
Do not make any decisions about capital expenditures until the current state is thoroughly understood. The best way to do that is to go and see for yourself.
Most organizations that I have worked with are reactive to most of their capital investments. The organizations realizes it needs equipment or needs to move equipment now (or this year). Organizations like this usually have a small capital budget, relatively speaking. Justification becomes a daunting gauntlet that must be run each and every time capital is needed.
The contrast is an organization that sets a 3-5 year vision, including layout and growth opportunities. When working with these organizations, they plan capital investments a few years out based on a larger plan. This allows the organization not to rush research on what the best or most appropriate equipment needed is.
Also, when looking forward to the next 3-5 years the organization only presents one proposal that gets reviewed for capital expenditures. When results are shown in the first year, the subsequent years become an easier review to make sure everything is still on track and make any tweaks that may be needed to the longer term plan based on what happened in the previous year.
My personal experience has shown it is much easier to get larger amounts of capital, if needed, than is usually planned. It also helps in selling the growth ideas the organization has. It becomes a lot more realistic and achievable when there is a longer term, proactive plan to point to.
If you are struggling to get the capital you need, my suggestion would be to try and be proactive through a longer term vision and execution plan.