Operations Perspective
Beverage market’s constant change impacts capital expenditures
Justifications, necessity prime factors for financial decisions
Beverages rank high as one of the most competitive and constantly changing type enterprises in the industrial world. A competitive nature business, producers and distributors are driven by consumer demand, technology innovation, demographic configurations and regulatory constraint challenges to sustain competitiveness. They also must cope with myriad changes that will determine success or failure.
With constant changes and competition, the financial aspect raises significant questions:
- What items are involved?
- Why are they needed?
- What will be the cost?
- How do you generate a practical, realistic plan for anticipated capital expenditures?
From an operations perspective, a basic approach contains two phases when dealing with capital expenditures in the beverage warehouse:
- Create a budget that categorizes and covers all parts of the supply chain from processing through distribution.
- Establish sources of capital to execute the planned budget.
Let’s take a look at this approach and the phases.
Capital budgets should contain those items that can be capitalized and depreciated over time. Depending on specific type facilities and accounting systems, the number and name of each category should be patterned for specific facilities because all beverage plants are not the same.
For example, some categories on the financial planning sheet could be facilities, processing machinery and equipment, material handling equipment, marketing, vehicles, sales equipment, administration and other groupings relative to a peculiar plant.
It also is prudent to assign a budget compiler who is capable of assessing and understanding the needs throughout the supply chain departments. Using a capital budget compiler helps to expedite the process and enables each department to properly and accurately assess needs and costs.
Budget process timing is important in terms of pricing, availability, sources, compliance and delivery schedules. The chronological period should depend on a plant’s fiscal calendar and allow sufficient time for developing justifications for proposed expenditures as well as making arrangements for final approval and clarification of capital requirements and providers. Then it’s time for phase two.
Obtaining capital to finance a well-planned budget has alternative sources that are available to most beverage people, again, depending on the financial posture of the particular plant and whether privately owned or part of a franchise system. Regardless, it’s important to consider several options that best suit a particular operating environment and economic situation.
Let’s explore several.
Most operations have a credit line with a financial institution and use that to obtain capital for all projects. This involves time and cost for money use; however, time and interest rates play important variable roles in this source.
There are beverage operators that establish escrow, or saving, accounts, to accumulate money for capital projects. Many invest monies in interest-bearing accounts, which generate income that would avoid payment for money use ― a favorable option in many situations.
Another capital source can be a franchise producer who could have capital projects subsidized, in part or totally, by the franchisor with specific conditions involving a product, package or both over a set time period. This option becomes proprietary and might not always be available.
Finally, a beverage producer might be part of a large corporation that has financial policies permitting access to capital at special rates and times ― a form of subsidy.
Whatever source is used, justifications and necessity are prime factors in formulating necessary capital expenditures as well as wishes for future projects.
Looking for a reprint of this article?
From high-res PDFs to custom plaques, order your copy today!
