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3 Things Procurement Gets Wrong About CapEx (and How You Can Get It Right)

Most procurement teams focus on OpEx procurement rather than CapEx. OpEx, or Operational Expenditures, includes categories such as raw materials, packaging, and office supplies. The super category covers anything a sourcing team would source daily, and thus has repeatable, scalable, and efficient processes associated with it.

CapEx, on the other hand, covers items bought once, or seldomly, including significant capital expenditures such as custom equipment for a production facility or the building materials for an entire high rise. CapEx-focused procurement teams are typically found in the construction industry or industries with large amounts of specialized manufacturing, like the automotive industry. 

With manufacturing processes changing, CapEx procurement is becoming more common in the manufacturing sector. The growing popularity of electric vehicles results in new plants being built and existing assembly plants having to adopt entirely new production processes, which is just one example. The energy sector is also poised for CapEx growth.

The sudden demand for CapEx specialized teams creates unique challenges. OpEx teams are adapting to fill the need, but ultimately CapEx and OpEx procurement each require a very different approach. There is ample opportunity for operationally-focused procurement professionals to get a CapEx project wrong. 

Before looking at three things that frequently trip up procurement teams, let’s take a quick look at the primary differences between CapEx and OpEx. 

 


CapEx Vs. OpEx

CapEx Procurement 

  • Purchases are often one-offs 
  • Purchases are often large and are intended to last a long time 
  • Purchases are likely to be custom made 
  • Examples include new manufacturing plants, cranes, or production equipment


OpEx Procurement

  • Daily purchases a company makes
  • Covers everything from raw materials to packaging and even office materials
  • Purchases are repeated 
  • Creating a scalable procurement process is very important

 


Three Things Procurement Professionals Get Wrong About CapEx

CapEx Procurement is Singular 

OpEx procurement uses processes that are based on repeatability. That does not apply well to capital expenditure. Instead, CapEx is a one-time purchase, and in some cases (such as a building), it’s something unique. That means the procurement team working on a CapEx project needs to focus on specifics: ensuring delivery satisfies requirements, the budget, and the delivery timeline.


CapEx Procurement Includes Change Orders 

Change Orders can be a big part of Capital Expenditures. Project managers on both sides often oversee a large project and change orders are standard. That might be the bill of materials associated with the project or even its scope. It’s critical to track the costs associated with change orders throughout a CapEx project; otherwise, it’s easy to lose track of financial outcomes.


CapEx Procurement has Customized Specs

With OpEx procurement, sourcing teams buy products or materials “off the shelf.” They usually have a SKU. There is a great deal of predictability because sourcing teams deal with standardized products or materials, known suppliers, and have access to historical pricing. It’s relatively easy for procurement to find suppliers that meet the requirements. 

CapEx procurement is very different in this respect. The sourcing team is purchasing a unique product or deliverable. Specifications aren’t off-the-shelf; they may be highly bespoke. 

Muddying the waters is the reality that some capital expenditure projects may have OpEx-applicable components. For example, a new building might have recurring expenditures such as pipes or wires. The sourcing team might want visibility into these costs instead of having them rolled up into a blanket invoice for the project.

 


Pro Tips to Getting CapEx Right

There are many opportunities for a capital expenditure project to go sideways if the procurement team takes the wrong approach. So how do sourcing professionals who are more accustomed to dealing with operational expenses ensure they succeed with a CapEx project? Here are a few pro tips.

One “hack” that can make a massive difference in the success of a CapEx project is the use of multimedia. If you have blueprints, drawings, schematics, or videos that will help suppliers to fully understand what you’re looking for, include them as part of the bid packet. Doing so helps to communicate the requirements, helps potential bidders ask better questions, and saves you from having to contact each supplier individually to explain details.

Suppliers who deal with CapEx projects are often highly specialized and experts. So, leave room on your RFP or RFQ for suggestions if they have a different idea about approaching the project. They may propose a different solution that could have a significant impact on the success of the project.

Make sure to ask suppliers for a detailed bill of materials complete with the unit of measure. Otherwise, you’ll have difficulty analyzing the costs to reduce the project expense by targeting expensive components. Having the transparency of units of measurement in a detailed bill of materials also makes it easier to compare supplier quotes.

Finally, use predictive sourcing and quoting to gain insight into how much supplier change requests will be adding to the cost of the project’s cost. For example, the supplier may come back mid-project to say they need to purchase additional wiring. With predictive quoting, you’ll have insight into how much that change request is going to cost—a valuable tool in approving change requests using empirical data instead of a subjective decision.

 


The Biggest Step for Procurement Teams to Optimize Their OpEx and CapEx Capabilities

We’ve explored the fundamental differences between CapEx and OpEx procurement and the ways even seasoned procurement professionals can get tripped up with CapEx. 

Now it’s time to take the step that will have the biggest impact on how your procurement team deals with CapEx, OpEx, and the potential for overlap between the two. Click the link to get started with a free template that can help you navigate the complexities of CapEx procurement. 

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Rob DeSantis

Founder

As a former co-founder of Ariba running sales, Rob has deep expertise in the procurement space, having helped propel Ariba from zero to $250 million in revenue in four years and IPO of the year in 1999 before its acquisition by SAP a decade later. In addition to co-founding Ariba, Rob was also an early angel investor and board member of LinkedIn, the world’s largest professional online network.

More recently, Rob served as an investor and advisor to a small portfolio of companies including Bloom Energy, AEye, Inc., HiQ Labs, Agiloft, USEND and more. He is also a co-founder of Dibbs Technology and TrueParity. Rob holds a BSME from the University of Rhode Island.

Marty Meyer

Chief Financial Officer

A trusted partner and advisor on the executive team, Marty has a unique background having been the CFO of nine venture backed technology companies. Marty has raised over $300M in venture funding and has closed six strategic M&A transactions with a combined value of over $1B. Marty has deep domain expertise in ecommerce, consumer internet, networking, data security, data privacy, media technology and enterprise software industries. Marty is especially experienced in the finance and operations activities of SaaS companies and is driven by data and metrics to help create outstanding customer experiences and drive efficient growth.

Neil Lustig

President and Chief Operating Officer

Neil is a seasoned executive with over 30 years of experience leading and building teams in Tech. Neil brings insights from a variety of market spaces and company sizes. Most recently Neil was the CEO of GAN Integrity, an innovative SaaS Compliance technology company serving enterprise customers in North America and Europe. Before that Neil was the CEO of Sailthru, a leader in ML driven personalized multi-channel marketing communications for media and e-commerce markets. Prior to that Neil was the CEO of Vendavo, the leader in B2B price optimization and management for large enterprises. Before Vendavo, Neil led the commercial team at Ariba, the market pioneer that defined and created the eProcurement space. Neil served as the GM of Ariba Europe and subsequently the GM of Ariba North America. Neil started his career at IBM where he spent sixteen years, initially as a software developer, and then twelve years in a variety of Sales and Marketing roles

 

Neil has a BS in Computer Science and Applied Mathematics from SUNY Albany. He is a native New Yorker, Brooklyn born, and still resides with his wife and three children in New York City.

Bonnie Adams

Director of People Operations

Bonnie is a People Operations and HR veteran, with over a decade of experience establishing successful people and culture functions for early to mid-stage tech startups going through high growth phases. She has a passion for supporting and creating inclusive and collaborative work environments and is well-versed in driving positive changes in her organizations as a trusted leader. Prior to joining Arkestro Bonnie worked as the People & Culture Coordinator for Ionic Security, helping them scale from 5 to over 200 employees in addition to a $120M funding round. Most recently she was the Head of People & Culture for blockchain innovator Storj Labs and was the Director of Human Resources at PrizePicks, the largest independently owned Daily Fantasy Sports platform in North America.

Arym Diamond

Chief Revenue Officer

Arym Diamond joined Arkestro in January 2022 bringing over 20 years of experience in the enterprise software and consultancy industry.  He is responsible for the worldwide go-to-market revenue strategy. Prior to Arkestro, Arym was Chief Revenue Officer at CalAmp focused on Telematics and Logistics. He also served as the area vice president of North American Sales within the Salesforce.com Enterprise Business unit for Einstein Analytics & AI, where analytics and machine learning were re-imagined for the front office.  Prior to that, he spent over 10 years at Oracle in various sales positions. Arym holds an MBA from the University of Southern California Marshall School of Business, and an undergraduate degree from California State University.

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