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Get Your Free equipment assembly: How to propose a winner Capital Equipment Justification

The heat is on! The address set for us in the U.S. The global competition is driving the U.S. manufacturing compete fiercely. Gone are the days when you can sit down and "put out" thousands or millions of products per month just to make budget times. Delivery times have been reduced. In most industries today, customers demand delivery of 1-2 days for standard products, just in time replenishment, high quality and reliable delivery promises.

As an example, a recent survey we conducted of NEMA electrical enclosures market revealed that customers require 1-2 day delivery from stock. Customers also are demanding high levels of reliability as far 95-98% of the time customer delivery performance. Moreover, markets are demanding better service, both in order to cycle up front, but also have a post-partum and post-field support the market. With more and more companies adopt Six Sigma strategies, High quality is a fact. You can not escape with 10-15% defect rate. To make matters worse, they want better prices, because they too are subject to intense competition.

But that's not all. The new emphasis is more and more specialization, or as we refer to it, "Customerization." They do not just products high quality and short delivery times, they also want some changes to a standard product. It could be a blow out wiring harness slot 2 "on the left of standard slot located in the standard drawing. It could be a different PCB in a subset of a drive shaft assembly control. It could fire insulation in the frame of a tractor off the road. Companies thus face the demands of the market by finding new ways to accommodate their customers.

To increase productivity and competitiveness, many companies in the U.S. continental philosophy have adopted Lean and continuous improvement and have incurred increases in productivity using of 5S and Kaizen events. They often start by participating in the "Lean Learning process" for hiring training companies to train in philosophy Lean. This usually leads to the facilitation of Kaizen events, where employees get their hands on the review of their work and challenging current methods to increase productivity.

Unfortunately, these approaches can produce results rather shallow. The reason is that only "pick low hanging fruit." But There came a point that in order to obtain substantial gains in productivity and performance, the new equipment is necessary for several reasons, such as cycle times faster and greater capacity: automatic tool changers, pallet changers automated flexible machining centers, assembly modules scalable robotic welding sub-assembly of robotic welding, laser to replace towers, and quick change tools or fixtures. So we are faced with the annual ritual of capital budget and "Dancing with the help of" Stars of a chunk of the capital.

The Corporate Budget Dance

This is what normally works. Companies set aside a limited amount of funds for capital improvement projects as a percentage of net revenue or otherwise. Each division of the company is competing for money to fund their capital projects. This occurs if the annual budgets for the year next. In some cases, each division allocated a sum of money in its budget for capital equipment based on past successes. For example could be $ 2 to 3 million or more than one division that produces $ 100 million in annual revenue, depending on the generosity of corporate moguls. So now vying for a piece of the Capital financing division, and you are not only from competition between manufacturing plants, but also within their own plant.

So how can rise above this process and develop a winning proposal for the capital equipment you need? Creating a solid analysis economic and an attractive financial package is a start, but only that. There is much more involved in getting the attention of management above, and obtain the signature of the authority to approve its proposal over another person. The following describes a method that consists of a series of elements that, when included, can make all the difference in the world.

Strategic Thinking

It is said that when you're in the trenches with bullets flying over your head, it's hard to reason of the war. Both senior executives and division level to think of a higher level, more comprehensive and strategic as compared to middle managers and frontline supervisors. A manager of manufacturing engineering and assembly will be influenced and limited by the level of visibility and exposure that he or she has. The same is true for a production manager. Both managers and production engineering managers thought in terms of relieving a bottleneck operation current, or to replace a high maintenance piece of equipment, or buy an automatic tool changer. Engineers working for these managers are thinking in the process level, where productivity gains can be made by combining operations with a single piece equipment. This can cause a disconnect with the general managers who want to increase sales, gain market share or find new sources of income across product lines to be added.

When developing a proposal for capital equipment justification, engineers and engineering managers need to think strategically: Thinking Like a senior manager or clients may think. Answering the question "What is there for the customer? A customer wants his Assembly that is buying from you as soon as you can get. Why? He may be in trouble, out of stock, and an old that between re-sellers of stock items Garding "You can not sell if not on the shelf." may be to reduce inventory. It is possible that need to turn it quickly to your customer. In any case, the customer will want to short supplies, high quality / low defects, competitive prices, availability and reliability of promised deliveries. If the proposal can meet the needs of customers, is likely to appeal to those who think at a strategic level and improve chance of success.

Aligning with the goals and objectives of the company

Every company wants to increase productivity and reduce costs, and many of us attend the Expos of the House to see what's new in terms of technology and product offerings. Or we could hear from the teams that has potential to increase the productivity of sales literature left by an equipment manufacturer. Where necessary, the specifications of the requirements for a piece of equipment, such as welding robot, and request a quote to the supplier. Once we have the dollars, the amount we ask for the team. A then we can determine that the welding robot can replace two welding stations manned by two employees, we believe we have found our justification. But so if the company is the price competition, key management objective is to increase market share, and a slight reduction in prices caused by a slight reduction in cost will not make a difference? If you justify your new piece of equipment through direct labor savings and cost reduction is minimal, probably will not reach "first base" with his proposal.

Any proposed capital expenditure to take the chance to win, must be aligned with business goals and objectives.

State of aligned objectives in the proposal as in section objectives of the proposed agreement as to increase capacity, reduce time performance, reduce delivery time, reduce scrap and rework, reducing setup times increase flexibility, etc. You can have multiple levels to identify. Firstly what are the corporate objectives? If final approval of its proposal based on the top of the organization of the business, you need to know what they want to achieve. Is your marketing strategy to have a physical presence in all markets regional proximity?

One company we worked with a marketing strategy developed to have close to key customers, with specialized finishing semi-finished products performed in regional centers. A proposal for an engineer to completely end products in the manufacturing plant has not received "the right time of day. "

Once you have identified the vertical alignment of the objectives it is necessary to determine what the metrics perform ing the divisions and managers plant is measured. If the measured quality defects, and the goal is to reduce the defects of a certain level, you need to state how your proposal is sup-port this goal. If the total waiting time reduction is identified as a key objective, and the division and the plant is measured by the extent of the results, focus on how reducing cycle time and processing time will help to achieve this goal.

Proposal format duly

Most executives prefer an Executive Summary at the beginning of the proposal. The abstract should be a synopsis of the proposal and should not be 2-3. Make positive and uplifting. Include a summary costs and benefits in graphical format. A graph of the costs and benefits as described above provides a great "point of view-on-a-glace" for the approving executive. Remember, whatever is in the Executive Summary will determine if your proposal read more. The proposal should include the objectives, assumptions, costs total, including annual maintenance, and benefits, but do so shortly. Long-term Dissertations not get read. Charts and graphs to provide an overview quick visual check on the executive of its proposal. Detailed analysis and calculations should be located in the appendices and referenced in the body of the proposal.

Total costs include

One of the last things that an executive wants happens is "blind sided" or surprised by additional costs of implementing the new assembly equipment were not included in the original justification. Than could quickly mount an engineer engineering director of "highly unpopular." So the task is to ensure that all expenditure has included for a complete and successful implementation. Cost of direct materials, if any, is first.

Fixed costs include fixed overhead costs, such as lighting, utilities, supervision, payroll services, general wages, quality control, inspection, speed up, rework, maintenance, depreciation of equipment, and utilities. Variable costs may include costs for direct materials, component costs, add costs of direct labor for assembly, inspection, testing, and the benefits of payroll.

Some of the costs of implementing could include the purchase price of equipment, installation of equipment such as fraud, energy, power and connection costs, air tools and accessories; personnel costs related to acquisition and project management, site preparation and cleanliness of the area and costs associated with relocating the team current home of another "." You can also recover some of their costs through the sale of the equipment. This should be identified and treated as compensation total costs.

A method of summarizing the total costs and the displacement is included in a graphic in the body of the proposal, with details, if necessary, in the appendices. An example of this table is described above.

Include all benefits

The key benefit that executives want to see is the increase in net income generated by the proposed capital ex-EXPENSES. Benefits must show a strategic importance as the capacity increase plant, reducing the time of delivery to the customer, increased sales, increased market share, improved net profit, improving quality and reducing costs. An increase in sales resulting from the implementation of the proposed team could be the result of increased production capacity. Or the proposed team could improve the quality of the result in the reduction of waste. Another benefit of a substantial improvement in quality could be the opportunity for the company to sell the product to a higher price, thereby increasing the profit margin.

Savings should include materials, direct labor, indirect labor, material handling, elimination of material handling equipment, overtime premiums, maintenance of equipment, indirect materials, indirect supplies, tool and die, the elimination of an operation, and reducing unit costs by spreading fixed overhead over more units produced as a result of increased capacity. Remember to include the hidden costs of benefits of the section is removed through the acquisition and application of the equipment.

A company that worked with overspending of guarantee as a result of poor quality, and when these were identified, the recovery period reduced from 6 months to 2 years, resulting in a more attractive return on investment. Examples of some of them caused by poor quality, as excessive warranty costs, can be found in the following table.

Create a solid analysis economic

There are different approaches and methods used to justify the purchase of capital goods. Most large companies have procedures formal standardization process. In this case, we must continue pro-procedures. This promotes familiarity among executives when reviewing proposals for expenditure capital, and provides the approving authorities with the information they need to assess the merits of the proposal. At a minimum, should include a credible, detailed analysis of the total costs and savings estimates. This should be included in the appendices of the proposal and summarized in the body of the proposal. Remember that executives want to see the "background" to determine whether to consider the proposal. This should be in the summary of the proposal.

A variety of methods can be used to calculate the potential savings in their proposed assembly equipment. People will read your proposal for capital equipment will look for factors key. If you do not have the comfort of an established company how to use the presentation of facts and figures can make a difference if your proposal is approved. Some used are return on investment, internal rate of return, return on book value, cash flow projections, the repayment period, net present value, and life cycle, the expectations of the project, capital equipment support.

You must follow the procedures of justification of the companies capital equipment if available and make sure it is in full compliance with them. We suggest that, at least you should have the full costs and benefits, cash flow projections, payback period and return on investment. It also includes a calendar that shows the time required for actual implementation purchase, installation and testing of equipment before beginning actual production.

Pack the package for greater profit

Think strategically and more broadly on many occasions is key to developing a better package to justify capital equipment. Instead of focusing on a single piece of equipment, and justify their purchase through savings in direct labor, which may be lower in importance, a broader view of potential improvements in an operation can reveal a lot more benefits to the plant.

For example, in the Pala Supercell described below, an operation is imprinting in induction heating followed by training. On one approach to this level of visibility, the benefits are narrow and confined to smaller area of floor. Instead, seeing the processes of the entire line of products and activities of the blade-making ", and the development of a supercell that is not just about in form, but expands to hardening, cooling, tempering, coating and assembly, a much greater strategic impact and establishing the benefits are much greater.

Get Your equipment assembly For Free

There is nothing more attractive to an executive's idea of getting new revenue producing equipment for free. This seems unrealistic and "pie-in-the-sky" but you can do to prevent cash disbursements net of value. If you think strategically, and make a package for a greater profit, then there is potential to significantly reduce inventories.

For example, in an environment of Lean Assembly, if reduced cycle times in the Assembly workplace For example, 50%, resulting in duplication of units to proceed in that work center with direct labor of the Assembly itself. That in turn results in reduced performance in assembly time and increased capacity. How to reduce cycle times from the Assembly, the necessity of bringing the same level of raw materials, purchased components, components manufactured, and work in process is reduced accordingly.

An inventory reduction initiative for a Lean Assembly (depending on starting point) can be of up to 80-90 percent with a 85-90 percent reduction in processing time, which is not uncommon. The reduction in inventory can be treated as a conversion in actual time, in essence, create the scenario where the application pays for itself. Thus, the controller of the company recovers its money in cash and inventory phasing out the application root: a win-win scenario.

Identify the audience

Most writers of proposed capital expenditures are not aware of it. Just as you would when preparing for a speech to conference, you have to identify what individuals who will review and approval of the proposal want. Answer the questions:

Key success here with the answer to these questions is to identify what the approval of the Executive who likes and prefers, and not ask their management as well as others in other parts of the organization, some subtle clues can help achieve this. If the executive wine sales, and has a BS, then it probably would be more interested in how a change in performance will affect customers, and may increase annual sales and market share.

Turning On the other hand, if the executive has a background in accounting, he may focus in costs, and behoove of the proposal with lace detail and strong economic analysis. Someone whose background is engineering meet the numbers and details. If you have this information wisely and to incorporate in its proposal will not guarantee approval, but may give an advantage over someone who did not.

For the second question "What do you know, want to know if what you propose is credible and solid foot and produce the results you claim. One thing I want is ex last ecutiv suffer the embarrassment of failure of an investment they made. That could be a career ending event. Therefore, it is necessary provide a convincing and credible. Both senior management, middle managers and purchasing agents will be more likely to approve the proposal if you have solid economic analysis.

For the third question, "What is there for them?" Executives just ent the proposal by experts, and you will have a winner of the justification of proposed capital goods.

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