High capital expenditure required to invest in automation

FP&A’s role in manufacturing is increasingly focused on finding efficiencies while improving revenue and profitability across the entire company.

As such, facing cash flow pressures in 2021, organizations were compelled to revisit and reevaluate their Capex projects. Now, again in 2022, as myriad forces impact supply and demand, companies once again have to determine where to make strategic investments (in production capacity, for example), which maintenance/sustaining projects can’t wait, and so forth.

This, of course, is not necessarily easy at a time when regulations, politics, new technologies, and variability in demand present formidable challenges for manufacturing executives. One thing is certain, however: the ability to pivot quickly, react opportunistically, and make capital decisions that are well-considered, strategic, and based on a holistic view of capital projects in progress or in consideration, can have a material impact in the millions.

Ways in which this is manifested include:

• Making capabilities-driven acquisitions which help create supply chain resiliency, achieve economies of scale, provide vertical integration and operational consolidation.
• Recognizing that, while borrowing costs for businesses remain at historical lows, long-term interest rates are now edging up. Companies generally have cash and financing capacity; this may be the time to spend it. For some sectors particularly impacted by the pandemic, funding capital spending will be more difficult.
• Investing in automation and digital transformation as a means of countering the “great resignation” and wage inflation, which are creating significant labor shortages for many manufacturers. For this reason, Capex spending in IT is soaring.

For more insights of interest to leaders in finance, download our comprehensive 2022 report, Strategies & Trends in Capital Allocation: Manufacturing. Download Now