Sunday, June 26, 2011

Bottom-part of Capital Investment - What to optimise

Companies are used to grow by their expanding sales turnover and new ventures. Its require to invest on capital equipments to achieve the higher sales goal but unfortunately, they have comparatively small capital budget with contrast of one year vision and have lack of vision in contrast of 5/7 years from now. This allows the organization not to rush research on what the best or most appropriate equipment they need.

So, most of the investments are not well optimized. The difference between well optimized investment and Bull purchase investment is proactive versus reactive capital investment plans.
Let me explain my words,

Suppose, I need to purchase a mobile phone. Now I can opt for two options,

1.    The shortest way is, I can carry a bucks of money and enter in to a mobile shop. Can ask for a mobile with in the budget I decided for and happily came out with one. What I would like to call BULL PURCHASING.
2.    Another option is little bit lengthy, where first I will  -
a)    Define the area of uses .(example :mobile projector is require for me or not, document viewer is require or not etc.)
b)    Decide the require features suitable for my uses I am looking for right now
c)    Decide the life span I am looking for (To go for another mobile )
d)    Features I expect / require over the life span
e)    Easy scope of up gradation during the life span to meet my changing need.
f)    Select few models
g)    Information on Maintainability, and prone to fail (based upon past data / user feedback ) and prompt service
h)    Finalize the best value for money
AND  Go to shop and purchase the decided one within the budget with affordable tolerance limit

I believe, most of us follow this proactive model when we have to purchase a mobile for own use BUT,

unfortunately when it comes to capital investment for a company, we follow the 1st model with miserably balance requirement with product quality and capacity. On a long run again we need to invest to increase the capacity.
And putting all together – it’s a big mess with untidy shop-floor with restricted Man- material flow, higher ownership cost for individual installation cost, individual maintenance cost, Total breakdown cost (TDC ) etc.
 For solving the issue, How it will be if
-  A proper future layout plan including equipment and  Man- material flow will put on paper. It will show the constrains to achieve optimum balanced flow with reduced MUDA.
Toss the plan on debate in a fear free environment ( Again, Dictatorship kills Idea and unfortunately, dictator thinks that “It’s the best option” ) and the best solution will come out
-  Stick with the solution and optimise capital investment size in terms of quality and low ownership cost (Bottom of the ICEBERG )  but not only on visible part of investment cost (Tip of the ICEBERG
Realise the investment as it require to meet corporate goal not only to meet current demand.
One difference between organizations that are leading and ones that are lagging in Lean improvement efforts is proactive versus reactive capital investment plans. Putting my above model into business model

(Source curtsy : savemoneywithgates.com )

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