SEARCH searchBY TOPIC
right_division Green SCM Distribution
Bookmark us
sitemap
SCDigest Logo

About the Author

Cliff Holste is Supply Chain Digest's Material Handling Editor. With more than 30 years experience in designing and implementing material handling and order picking systems in distribution, Holste has worked with dozens of large and smaller companies to improve distribution performance.

Logistics News

By Cliff Holste

September 3, 2014



When Seeking Project Approval – Be Prepared With Facts & Figures

Understanding Big Picture Economic Factors That Drive Capital Expenditures



Holste Says:

start
To put your project in the best light - highlight benefits upper management can buy into.
close
What Do You Say?



Click Here to Send Us Your Comments
feedback
Click Here to See Reader Feedback

Previous Columns by Cliff Holste

Sorting It Out : Keeping Older DC Systems Up-to-Date is an Ongoing Challenge

Sorting It Out : E-Commerce & Next Day Delivery Go Hand-in Hand

Sorting It Out : Flexible Processes Are Key To Managing Volume Fluctuations

Sorting It Out : DC Capacity Planning

Sorting It Out : What Is The Correct Level Of DC Automation?

More

 

According to a January 16, 2014 Investor Center article by Rich Smith, for several years – ever since the Great Recession ended – pundits have been pontificating about U.S. corporations raking in huge amounts of profits and then sitting on them, refusing to put the money to work to grow the American economy. SCD found a variety of financial resources reporting that the amount in question is guesstimated to be $1.48 trillion.

 













Regardless of the actual amount, perhaps the most surprising revelation is that corporations aren’t entirely free to spend this cash as they wish. This is because not all of the cash was amassed from profits that the corporations earned. In fact, a lot of it is reported to be money that they borrowed.

Business analysts suggest that this debt accumulation reflects a very accommodative bond and loan market with low overall costs and attractive terms for borrowers. The net result – as of January 2014 (latest info), nonfinancial companies have stacked up a staggering $4.8 trillion worth of debt owed to their lenders and bondholders.

What the mass media pundits don’t say is that the $1.48 trillion that U.S. corporations supposedly have stashed in the bank, and are too stubborn to spend, is in really not theirs to spend at all. Every penny of it – and more (as stated above), is already spoken for by the banks and other creditors who lent them the money.

A lot of this debt will have to be repaid in relatively short order. According to Moody’s data, some $1.53 trillion in nonfinancial corporate debt matures over the next five years, which is actually a bit more than the guesstimated $1.48 trillion in cash they’ve got on hand.

So why is this important – because those that are waiting for the happy day when all of this corporate cash comes “off the sidelines” and floods into the market, lifting the economy, may be kept waiting far longer that they expect. According to the experts, what we should be worried about is the risk that corporations will have to take even more money out of the economy ( i.e. not invest it) to pay their debts.


Preparing for the Inevitable Project Approval Interrogation




Currently, there are many logistics improvement projects, large and small, that are on-hold pending funding approval. This is of critical importance given that many U.S. based businesses have delayed or postponed investments in projects that require capital funding until they have more confidence the economy is really on the path to recovery. As a result, CEO’s/CFO’s are not thinking as much about how best to invest the company’s cash reserves as they are how to maintain a secure and healthy business.


 


This does not necessarily mean that they won’t invest, but that capital projects must be presented so that upper management can clearly see the risk/reward benefits.

To put your project in the best light - highlight benefits upper management can buy into. Being prepared and knowing how to quantify and effectively communicate the expected results for your project will increase your chances of obtaining approval.

The following are ten tough questions you can expect the financial officer of your company to ask:


  1. We couldn’t justify this project in the past. How come we think we can do it now?
  2. What happens if we continue to wait and do nothing?
  3. Is the schedule realistic? What is the impact to the project justification if problems delay the startup?
  4. What unique risks (business, operational, technical) does this project pose?
  5. What other strategies did you look at and why is this project the best alternative?
  6. What is the impact to the project justification of changing cost of capital, errors in forecasting, or other unforeseen conditions?
  7. What do you mean a 24 month payback is unrealistic for this project?
  8. What is the impact of this project on the company’s long & short term strategic goals?
  9. Why did you quantify intangible benefits such as higher employee morale, improved safety, or greater customer satisfaction? Shouldn’t we just assign them a value of zero?
  10.

Why should we invest in this project instead of increasing shareholders dividends?


Note:
The above questions may be asked of you in a formal pre-scheduled business meeting, or informally in a more casually setting. Therefore, be prepared and on-guard.

Another approach that sometimes can get a project started is to propose doing the project in small steps or phases. The first phase could be consulting/analysis, planning, design engineering and permit approvals, all of which can take a considerable amount of time, but are a relatively small portion of the total project cost. By getting this initial analysis and design work completed, you will be ready with a good set of specifications and system layouts to request competitive bids from various vendors.


Final Thoughts

 

ProMat 2015 will kick-off in Chicago on March 23 – 26 www.promatshow.com . In addition to vendors eager to do business, there will be many new innovative order fulfillment ideas, especially those related to automation. Being prepared with preliminary plans and supportive data will enrich your show experience.

 

Recent Feedback

 

No Feedback on this article yet

 

 
.