Strategic Capital Planning in Manufacturing: Maximizing ROI, Efficiency, and Sustainability

Good afternoon, everyone. Welcome to today's webinar on the topic of strategic capital planning and manufacturing. I'll be giving another minute or two for everyone to join, and then I will kick it off today's call. We are having a chilly morning here up up north. I'm based in Toronto, so it's minus fifteen degrees in Celsius outside. So it's a very, very chilly day for us today. It's very windy outside. So hope everybody is staying warm in this cold weather if you're staying up north or wherever you are. Okay. So it's one zero one, so I will kick it off today's webinar. So as I said, today's webinar topic is capital planning in manufacturing, how to perform capital planning, what is capital planning, what are some of the best practices, what are some of the priorities that we should be considering in order to perform capital planning process? So before we get into the webinar details, I would like to give a quick introduction about myself. My name is Ronak Meghwan. I'm part of the portfolio marketing team here at the Brightly Software, a Siemens company. A bit about my professional background. So I have worked in a mostly food and beverage companies in my previous life, mostly almost ten and eleven years. I have worked for companies such as Coca Cola, Maple Leaf Foods, Ventura Foods. I worked in a different departments as a maintenance manager, engineering manager, as well as recently for Coca Cola. I was working as a senior operations manager prior to joining the Brightly team. So I was in those positions where I had led the entire team doing the capital planning, multiyear capital planning, one year, three year, five year capital planning for those companies. So I'm very thrilled and excited to, go through today's webinar topic. So without further ado, let's get into the webinar details. As I said, we have a jam packed agenda for the next half an hour, so I'll make sure to make this half an hour as much insightful as I can be. So as far as the agenda go, we'll start from the definition of what is capital planning, followed by how to define priorities when you are doing the capital planning process. What type of priorities you should be taking into consideration. After that, we will be talking about this is a very general terminology that most of you have heard numerous time, CapEx versus OpEx. What is the main differentiator between those terminology and how to measure ROI since return on investment has becoming more and more tangible across all the manufacturing organization in recent years. And we will end today's session by going through explaining some of the best practices that we should be consider while planning for the capital plan. Okay. So before we get into the detail, I would like everybody to go through our first poll question, which is, have you ever participated in the capital planning process? So I just wanted to understand, have you ever planned a capital planning? Do you have the understanding, or are you part of the team who does capital planning, or are you here for to gain the further knowledge? So if you can answer whether yes or no. K. A few more. Okay. So eighty percent of you are saying that, yes, you have planned and have have been part of this capital planning process. So that's wonderful. So today's webinar will be giving you more insights on how to look after some of the small priorities and small fine details that will be helping you in your next capital planning process. So let's begin today's webinar from the industry definition standpoint. So what exactly is capital planning process? So when I talked about the manufacturing organization, the two main pillars where any manufacturers can thrive and can be successful are, one is their production assets, and second is their infrastructure slash facilities and building. So any manufacturers who are investing in their production assets as well as their infrastructure facilities will be making sure that they are increasing and enhancing their company wide portfolio. So when it comes to the definition, the main definition for capital planning is where businesses and organization allocate their financial resources for the long term financial investment in two, rather in their production assets or in their facilities slash infrastructure to standard their facilities portfolio. So though those are the main two features that can enhance your capital planning process. So capital planning, in a nutshell, is you invest in a long term financial to enhance your company wide portfolio, a, could be in the assets or, b, could be in your facilities slash infrastructure. Moving on. So how to define different priorities when it's come to the capital planning? So let's understand by identifying the need. So there are three different pieces to this puzzle starting from identifying the need. So first, as a manufacturer, as a decision maker, we need to understand what are our needs, what is our priority. Right? So there are five different buckets that any manufacturer can relate to when it comes to the capital planning. So beginning with, as I explained, facilities. So any projects that you would like to consider, for example, let's say if you have a forty, fifty year old boiler, which is causing us a lots of downtime on a daily basis, you would consider to replace it with a brand new boiler that can give you more sustainable operations as well as can help you reduce the overall utility savings. So that would be your very first bucket that any project that can fit into your facility needs, that can increase your facilities and infrastructure would take place into your facilities bucket. Followed by the second would be a production throughput. So, again, as I explained, the main two pillar facilities and assets. So any production assets that you would like to replace because that asset maybe is too old, maybe it has repetitive failures, maybe it is reaching eighty percent of its life lifespan. So so many different reasons. But at the end goal, if that production equipment let's say if you have a filler, if you have a ketchup machine, which is producing your ketchup, is causing you ten hours downtime on a weekly basis, you should consider replacing that catch up filler with a brand new filler so that you can, a, increase the overall efficiency and, b, reduce the unplanned downtime. So that would be the second bucket where you can fit in any project that you can think of that can increase your all production throughputs and output volume. Number three bucket, which is EHS. EHS, which is stand for environmental health and safety. So this is a very, very important stakeholder group within the manufacturing organization. Even in my previous life, I used to work very closely with the EHS team because nowadays, sustainability, carbon emission, those are very widely known terminology. And all the organization due to the regulatory compliance, they are putting more pressure to make sure that they, a, they stay within the compliance and, b, they operate within the allocated living limits when it comes to the carbon emissions or even your wastewater treatment plant. Most of the manufacturers have wastewater treatment treatment plants. So we need to make sure that before we send the water out back to the city, that water must be treated properly and correctly with the proper chemicals. So example like this, and on top of that, when it's come to the piece of healthy, so health of the employee is very important. So anything to do with the safety and health of the employees, let's say, if an equipment a is not safe for an employee to operate, we need to make sure that that equipment is being replaced under this piece, which is EHS. So any project that you can think of that can fit into the bucket, which is environmental health and safety, that goes along in this bucket, which is EHS. Followed by QA. QA, again, stands for quality assurance. Any manufacturing organization that you are currently working, they all have the quality assurance department. Quality assurance department is goes hand in hand with the entire production throughput. Right? Because, a, they are the one who are validating the final product, and, b, they are making sure that every validation process is working appropriately. So any project that you can think of that can increase your quality assurance department oral productivity. So let's say if if you have a weight checker machine or weight checker conveyor on your production line, which is currently causing you two or three percent of a reject rate, which is way too high. So if you can replace that weight checker conveyor with the most advanced conveyor right now, that can bring your rejection rate from, let's say, two to three percent to below one percent. That would be a way much, production throughput that can that we can add it back to the entire production. So thinking of that, any project that you can think of that can increase your overall quality of your production environment, that can all fall into a quality assurance bucket. And the last department, which is technology, in other words, software. So now we are almost in twenty twenty five. So what is better than having advanced automation system in your manufacturing industry? So anything that can enhance your software, example, ERP system, CMMS system, Keradar system. So any technology, any advanced software system that can enhance your advanced software system that can enhance your day to day operations, all those technology, all those software systems can fall into this last and final bucket, which is technology. So, again, these are the main five bucket and criteria that any manufacturer who can think of that that they have any project that they would like to proceed ahead and put it in front of the decision makers for the capital planning process for the upcoming years. So now we talked about identifying the needs. Second piece of the puzzle, now it's paying up with the greater ROI. So ROI, which stands for return on investment, and in the next slide, we will understand more in detail what is return on investment, how to calculate it, and how to pair that up with your initial project needs. So most of the manufacturers, and I can give you my my recent examples as well working for Coca Cola. Any company that I work for whenever I do the did the capital planning process, I always make sure that what is the payback period for the given project that I'm doing. For example, if I'm installing a brand new boiler and if I'm replacing it with the forty year boiler, what is my payback period? So, again, this is a industry term right now. Any product that can give your money back in less than three years, those products are most probably to get it approved from your decision maker. And, again, this is, industry standard, but it can vary case by case scenario. So if some manufacturers are more aggressive, they would ask for two years or less than two years worth of payback period. Some manufacturers who are more more lenient and liberal, they might be okay up to four years for the payback period. But the current industry standard stands at three years or less than three years for the payback period. And the last piece to the puzzle, so now you know your needs, now you know your projects, now you have calculated your ROI. The last piece to the puzzle is plan and execute. It is very, very important as a project person, as a capital planning leader, to make sure that all the involved stakeholder parties, whether it's your internal stakeholders, whether it's your external stakeholder parties, they are all staying up to date with the step by step process. Because, again, entire project life cycle, there might be five to ten different steps. There will be five to ten different stakeholders who are involved. There might be change in the timeline. There might be change in the raw material timeline. So there are so many different contributing factor that can affect the overall capital planning process. So the more robust project planning we have and the more communication we do with all the involved stakeholder parties, will make sure the successful completion of the projects. Giving you an example, any unplanned downtime, any unprecedented cost to your assets, any asset utilization, return on investment, your production capacity with your demand forecasting, These are all the different contributing factors that can affect your overall capital planning process. So having more understanding, working very closely with the all all the involved stakeholders will make sure that your capital planning process will successfully get completed within the timely manner. So these are the three main steps and I would say the main three pieces to the puzzle, which are defining the priorities. Now let's move on to the next slide. In this slide, let's understand what is the main difference between CapEx versus OpEx. CapEx, which stands for capital expenditures, and OpEx, which stands for operational expenses. So when when I talk about CAPEX, what are some of the differentiators? So CAPEX is a substantial financial investment. It's a long term significant financial investment. Most of the project which I have done in my previous work life were upwards of five hundred thousand dollars. So, again, a substantial financial investments. It benefits the company on the long term, so it has to tie in with the business's long term strategies and goal. So if, for example, if you want to include and buy a brand new boiler and compressor to improve your overall utilities, portfolio, that can qualify as your CapEx plan. And at the end, it decreases the business's taxable income. So it does affect and help the overall business organization from the financial standpoint by decreasing the overall taxable income. So these are some of the major, major differentiator for CapEx. So now let's understand what what is OpEx. So OpEx is the financial fund that is available for the manufacturer, for the decision maker to run their day to day operation. For example, all your rents, all your utilities, all your residential supply that you buy for your offices, your day to day maintenance, your day to day sanitation, your day to day quality assurance, and the parts that you need, that all comes out from your OpEx expenses. It incurred in the same financial year. So if any of you who have seen your, balance sheet, your p and l sheet, opex is part of your monthly financial budgets. So you can see and you can understand where you're gaining money and when you're losing money. And the last, it provides the immediate benefits to the business. So the major differentiator when now you see side by side OPEX, it provides benefits right away, whereas, CAPEX decreases the taxable income on a long term. So these are the major, differentiator between what is CapEx versus what is OpEx. Okay. So as I explained in my previous slides, and I did talk about what is ROI. So let's understand. ROI is a return on investment, which is a ratio of net income to a total cost. And, again, I will explain you through the example as well. But in a nutshell, if your ROI percent that that comes with greater than hundred percent, that means you have a positive cash flow. If your ROI percent that comes in as a is less than hundred percent, that means you have a negative cash flow within that capital particular project. So for example, as I explained, let's say if I buy a brand new boiler as part of twenty twenty four and that boiler cost me two hundred thousand dollars. So now before buying that boiler, I have already did the utility savings analysis alongside with my finance team. And I came to know after doing all those calculation that by replacing my fifty year old boiler with the brand new boiler in twenty twenty four on a yearly business, I will be saving roughly fifty thousand dollar just on a natural gas and a water savings. Because most of the time, in my previous boiler, I had to run the feed water boiler tank twenty four seven, and same goes this same goes with the natural gas. But now the new boiler will work depending on the energy demand. It won't use that much of a water, and it will have a significant natural gas savings. So when I count that fifty thousand dollars savings on the first year, so that means it will take me four years to get all that money back that I'm putting towards buying the brand new boiler as part of twenty twenty four. So to summarize, if I want to count and calculate what is the ROI percentage for this particular project, it will be four year payback period based on the information provided by my finance team. So just wanted to give a a quick example so it makes sense because right after COVID, post COVID, most of the organization, most of the manufacturers are going towards and leaning towards having ROI attached alongside with your capital project. Okay. So next, now let's move into some of the best practices that we should consider, and I know majority of you have already been part of the capital planning process. But if if you are aligning with those best practices, if you keep these best practices in mind, it will make sure that you can do more accurately capital planning for your next upcoming years. So the first one is aligning with the overall business strategy and goal. So how do you align your capital planning project for your overall business and goal? So I would like to give a quick example so it can relate with all of you. So in my one of my previous work life, I was told that, hey, Ronak. We are sitting in twenty twenty one. By twenty twenty five, we need to have ten percent more production throughput. So that was the outcome I was given when I was planning for capital planning in twenty twenty one. So now I know, hey. I need to increase my production throughput by ten percent in four years. I can't do that right in one year. So I need to increase by two to three percent on each year. So by twenty twenty five, I would be reaching that goal, which is ten percent overall production volume growth. So how do I do that? So now I go back, and now I know what is my overarching story, what is the, long term business strategy. So now I can work with my my engineering team, my maintenance team to understand, hey. If we replace some of the fillers, some of the production equipment, it can increase the production throughput by two percent in one year. So based on that realistic data, based on that historical data, I can start planning out my capital planning project. So it is very important and vital to have a thorough understanding of what is the overall business goal before planning for your capital planning. So now you have that vision. So now when you plan for your capital planning, you can think, okay. Now, hey. This is what I wanna do five years from now. Let me think about this way. So that's the first thing. Second thing, which is communication and collaboration. Again, communication is a vital important key for any business operations across manufacturing. But when it comes to the project, capital project, it is most important thing because even in my previous life, when I was leading multiple CapEx project, I had a team. Some of them were remote. Some of them were in in house, but they were extremely busy with their day to day operation. It was next to impossible to stay on top of it. All the updates. For example, if I need to include r and d, product development, quality assurance, production, sanitation, finance, just on my finger to PMO, it's like seven to eight different just internal stakeholder teams and give them quick update, proper update, give their feedback back takes a lot of time. So having a proper communication and collaboration integrated within your project life cycle, it's a it's a very important key aspects and one of the best practices that anyone can follow when it comes to the capital planning process. And last but not the least, contingency planning slash risk management. So COVID nineteen has touched us a lot of new things. This was one of the thing that came out very drastically, which was the contingency planning. So prior to COVID, like, we weren't taking that into serious consideration because, a, the supply chain wasn't that disruptive at the moment, b, the inflation was not there, but right after COVID and I can tell you my example. Twenty twenty two, I was working on replacing the steam pipe and drain pipe across the manufacturing organization. The project was approved. The ten percent invoice was given to the third party vendor. And next day, I was told, hey. We will not be able to get your, pipes for next eleven months due to the Russia and Ukraine world start up. So situations like that, which is solely out of your control, you need to come up with the contingency planning. So what is contingency planning? That means you have a backup plan in place, whether it's in terms of dollar value, whether it's in terms of efficiency, whether it's in terms of terms of supply chain or raw material. Right? And then intertwine contingency planning with risk management methodology can help you in this different difficult scenarios. Risk management, again, is is it goes hand in hand with the contingency planning. So let's say, as soon as you identify what is your risk, so let's say if I'm being told that, hey. My risk is the delay in getting those raw material, the raw material I need in order to complete that particular project. So now I know my risk. So identifying risk would be the first step. Second would be prioritizing the risk. So let's say if I have three, four different risk within the capital project, I need to prioritize which risk takes the utmost priority. So prioritizing the risk would be the second step, following up by managing the risk. So now I need to manage the risk. So how do I manage the risk? Do I delegate the task? Do I minimize this task? Do I mitigate the task? What should I do? So there are different scenario. But by managing the risk, I'll be making sure that whatever the risk that I identify, it is under the control. And the last piece in the risk management is tracking the risk. So now I know my risk. I have identified the risk. I have prioritize the risk. I have managed the risk by delegating it to my one of my team member. Now the last piece, I need to make sure I track that risk so that it's no longer a risk, but it is under the control. So these are the step by step process as part of your risk management and contingency planning that we should be always considered when it comes to the best practices. Because as I explained, capital planning process in manufacturing can be affected by so many different things, whether it's a weather permitted, whether it's a supply chain, whether it's a internal disruptions. One of my previous project I was doing, I had a I had a entire leadership change at that same year. That made a huge impact on my entire yearly capital planning project. Because what happened, now I had to go back and I have to explain the all approved project to that newer executive leadership team, get their buy in before I can start up those capital planning project. Right? So this was something that I wanted to explain that when it comes to the best practices, these are the three main best practices we should always consider and keep that in mind. Okay. So let's move on. This is the last slide for our today's session. So I know I did talk a lot, but I want to make sure that all of you can go back with more refined information. So we did talk I did talk about what is capital planning. I did go through what is the different priorities, how to calculate ROI, and how we can affect the overall capital approval process, and the last was the best practices. But as you as you can see on the right hand side, how exactly do you maintain your asset life cycle. Right? So when it comes to your assets or when it comes to your facilities, like, how do you make sure? I'm not sure where you are in your journey in managing your current assets in your current manufacturing organization, But but, practically, this is the step. It's a three step process. It starts from FCA, which stands for facility condition assessment, followed by CMMS that gets into your AIP, which stands for capital planning process. So if you are not sure what is your assets health index sits as of twenty twenty four, if you are not sure how many repairs, how many preventative repairs, or how many reactive repairs were done on those assets in previous years, let's say, last two or three years, your first step into this would be performing facility condition assessments. So by doing FCA, now you have the most realistic data available about all of your existing assets, Whether if it's your production asset, whether it's your utility assets, or whether it's your facility assets, for example, rooftop units and handlers and as such. So now you have that real time collectible data that you receive from FCA. You can feed in that data into your, existing CMMS system, which will start tracking your health of your assets. So for example, let's say, if you already have a motor and gearbox which was installed in one of the conveyor, so now you have the data available for that motor for the last two years that, hey. I replace I always replace this motor because it's getting burnt out every three months. So now I know the data. So now if I'm creating a preventive maintenance plan for that conveyor and for a particular modem gearbox, I know that I need to do a thorough inspection every three months to make sure that motor is is not growing more and then it should be growing. So for example like this, this would be very helpful in order to manage and track your assets after you do the facility condition management. And the last piece to the puzzle puzzle would be once we have all of this data available for, let's say, for two years data or one year data. So now you have historical data and real time data available that you can leverage for your capital planning project. So now, again, a, you are not relying on a guesswork, b, you are relying on a historical and a real time data. So if there is any questions asked by your decision maker saying, hey. Why you are not going with project a and why you are going with project b, you have a data to support your application. We have a data to support your entire capital planning process. So as I said, it's a three step process. When you see it from the overarching story, first step would be FCA followed by CMMS, and the last piece would be feed that data into your next year capital planning process. And on this note, we are coming to the end of the session. And I do have the last question, the last poll question for all of you. How do you prepare for your capital planning process? So I know eighty percent of you have said that you have already taken participation in your capital planning process. So, like, how did you do that process? Like, was it all guesswork, or was it using historical data? Or did you leverage any advanced capital planning software system which can help you to provide you an asset health index and tell you exactly what is the asset life span left for your utilities as well as your production assets. Okay. So the data is coming up and oh, I'm glad to see that sixty percent of you are saying that you guys are using historical data. So I'm glad to hear that that you have the historical data available. So my ask would be that making sure that you always leverage that historical data, update that historical data as it needs. And then down the road, if you have availability, the there are most advanced capital planning software which are that can enhance your capital planning process as well. Okay. And on this note, this is the last piece. I'm gonna open the forum for any q and a, any questions, answers. So any question you guys have across the session I have dealt for last half an hour, anything to do with capital planning, anything you would like to understand, any questions you have, anything you would like to hear from my previous work life that I it can be helpful in your upcoming capital planning process. You can leave that into a chat, and I would be happy to answer your questions. Any questions, anyone? Feel free. Okay. So, seems like, there isn't any question right now that I can see in the chat. So I wish everyone a very good rest of your day. Have a proper understanding of the capital planning process. Again, if you have any questions afterwards, you guys can contact me on the LinkedIn or you can contact Stephanie, and we'll we will be happy to answer any of your questions or queries you have, about this capital planning webinar. Again, thank you very much. Thank you for your time. Have yourself a good day. Oh, okay. Hey. Rodak, it looks like some questions came in at the last minute. I think there was a delay on our end. Can you just go ahead and go through those questions for us? Yeah. Yeah. Sure. I I can't see the question. Can you see it on your end, Stephanie? Sure. Let me go ahead and read some to you. Please. I can Julian asked, how short or lengthy were your presentations to management for approval? That's a very good question, Julian, because, again, this is a case by case scenario. And and if I tell you my personal experience, because all of my capital planning process, because I mostly worked for the corporate companies in my previous life, I had to present in front of the, c suite level people. It's example, CEO, COO, CFO. So my my presentation were limited to five slides. I never went up and above five slides because I wanted to stay stick to the point. So let's say if I'm talking to CFO, my main focus for him because I know he doesn't care about the project life cycle. All he cares about is the number. So So when it comes to return on investment, calculation of return on investment, that was my focus point when I was talking to CFO. When I was talking to COO, I know that his his main interest is to see how that capital project will enhance or will improve the overall production outcome and volume. So I always try to see who I'm talking to, and based on that, I always made my presentation. But to answer your question, never went in above five slides because there were only five and six people who were there who I have to talk and get an approval from. So let's say engineering guy, finance guy, operations guy, and executive guy. So, again, this will be the panel of team who were asking me questions. So I always kept in mind that I have an answer from engineering standpoint, finance standpoint, and operations standpoint. Another question, this one from Cameron. Can you speak to ROI versus NPV? So NPV, which stands for net present value, so that is a more financial term than most of the, other manufacturing organizations are following. But right now, when I speak for the core manufacturing industries, mostly food and bioplastic industries or steel industries, they are not going into that detail. Their main intention is that there has to be some sort of a return on investment. So it is very hard to calculate return on investment just strictly by the numbers. That's why if you can count by the man hours or labor hours so let's say if you are doing any projects that can eliminate, let's say, two man hours or two labor hours, that's your straightaway return on investment on a yearly basis. So if you have two manual labor let's say if I'm installing a brand new palletizer which can get eliminate two people, that means eighty thousand dollar make let's say, if one person is making forty thousand dollars a year, eighty thousand dollars a year on a yearly basis is my ROI right away straightforward. So that goes towards my ROI calculation. So, again, it was a case by case scenario, and it wasn't always necessary to go NPV route. It was either an efficiency route, either a manual labor elimination route, or either a utility savings route, or either if it's production throughput route. K. And one more question. This one from Dijon. Are there any templates available to help with the planning? That's a great question because I was talking to one of my internal partners. So, again, I don't have the concrete answer right now, but we are working on providing something more generic very soon. So you you will have an answer. You will see something coming out from Brightly soon because I'm, again, brainstorming with with the internal to see if we can generate some sort of a generic tablet that can help because I'm getting this question asked a lot nowadays because there is no such generic tablet out there in the market that anyone can help and navigate through it. It always varies from companies to companies, departments to departments. So again, one for information to come in the near future. Alright. That looks like all of the questions. Thank you to those who hung around for the q and a, and you'll get a, recording of this webinar in your email in the next forty eight to seventy two hours. We hope you all have a great day. Thanks so much. Thanks so much, Rona, for your time. Thanks, everyone. Bye for now.