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Financial Approval

One of the biggest challenges I see customers face is financial approval.  Proposals are rejected most often for one of two main reasons:

 

Insufficient ROI – When the finances don’t add up, there is no reason for finance to approve the project.  However, there might be other arguments for justifying the purchase of the equipment.

  1. Safety – Safety trumps finance all day long.  It is important, of course, that there actually be a safety concern.  In order to justify the safety concern, you should present any incident reports or another type of proof.  Other types of proof could be videos or pictures.  Also, look to get a testimonial from the facility safety director or operators and line supervisors.
  2. Future Capacity – I have had customers invest in equipment that yields faster cycle times to plan for the future.  As an example, if the current cycle time is 40 seconds but the projections are indicating the need for a 28 second cycle time, it might be financially wiser to invest in 28 seconds now when adding new processes to the line.  This is especially true when the new process must be added and the cost to achieve the improved cycle time in incremental compared to future costs.  An example of this would be adding a leak test to an existing line.  The cost of the single station test that will achieve the 40 second cycle time is $250K, but adding a second station that will yield a cycle time less than 23 seconds will cost $350K.  There might be some argument for the additional station.  Unfortunately, planning ahead is not often a strategy in manufacturing, but sometimes placing a bet on the future has real merit, especially when you consider that adding the second leak test station in the future is expected to cost an addition $250-300K.  This price is nearly double the estimate to do it all at once because all of the work has to be done again.
  3. Core Technology – Sometimes companies have core technical processes that they feel give them an edge over the competition.  The justification in the purchase and implementation of this equipment or process might be in protecting trade secrets or in the marketing and sales strategy.  Claims of technical advantage in the market will be backed up and justified based on the business strategy.  The justification for the investment might not make sense from a financial perspective, but is justified based on the business strategy through technical advantage.  This can be very difficult to validate financially so be prepared to defend with evidence of the business strategy.

 

Insufficient Capital Funding – This happens for a number of reasons, but the main reason is because when your company quoted the project to your customer, they did not get quotes from reliable sources.  Customers often will do their own capital estimates when asked to quote a new project.  It is important to understand that we all must compete for business, so your internal quotes will likely underestimate the real capital needs or requirements.  Here is an example: Ford has requested your company submit a firm priced quote for a new head lamp.  The program manager might come to the Advanced Manufacturing Engineering team, or the facility Manufacturing Engineer and request a quote or estimate for capital needs to produce the new head lamp.  The PM encourages the ME to be aggressive in their pricing because it is the only way they will win the project.  So, the ME decides to rough out the estimate themselves, but doesn’t realize there are some new processes that have not been required on previous head lamp assemblies.  They supply the quote to the PM with underestimated requirements.  Ford awards the business and it is time to buy equipment.  This is when everyone discovers the capital budgeted is going to cost $500-750K more than projected.  This is a predicament because the ME doesn’t want to admit the error to the PM and management, so they cut corners on the requirements.  They might seek cheap suppliers and compromise the long term reliability of the equipment to meet the budget.  I have seen this countless times in my career.  Seeking to please the PM’s and management with less than adequate capital needs only makes your job as an Equipment Engineer more difficult by a factor of 10.  Don’t sell yourself short on capital requirements is the lesson to be had here.  If you are getting pressure, submit your numbers with your work and let the PM or management adjust the funding.  Insufficient capital funding is a main cause for low quality, unreliable equipment.  It burdens the entire manufacturing support system (i.e. engineering, maintenance, operations).  The World Class customers I have worked with recognize this and do their best to ensure they do not compromise the quality of the processing equipment due to funding issues.

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