How should buyers approach sourcing for CAPEX and OPEX?

23/09/2025 Daniel Do Comments 0 Comment

CAPEX and OPEX are emphasized in CIPS Level 4 and are frequently asked in the exam. CAPEX and OPEX is one of purchasing categorization approaches based on the nature of the purchase. CAPEX stands for CApital EXpenditure and OPEX stands for Operational EXpenditure. Are there any differences when sourcing CAPEX and OPEX? To answer this question, we should begin to analyse the features of these purchases, as they determine the specific requirements in the sourcing process.

CAPEX ( Capital Expenditure) refers to the purchase of long-term assets such as machinery, land, warehouse, factories. In the CIPS study guide, the author refers capital purchases as “the spending of money with a view to making money”. This means that financial benefits of capital purchases will be received over time.

What are the common features of capital purchases?

Capital purchases incur multiple types of costs during its useful life, so price is not the only important factor. Buyers need to consider additional expenses such as installation cost, maintainance cost, operating cost, end of life cost…to evaluate supplier’s proposal accurately and comprehensively. Total cost of ownership should be considered to avoid hidden costs and budget overruns.
Capital purchases require a high initial investment. Many companies struggle to acquire assets using their own capital, so they may take out a loan from a bank to finance the purchase. Buyer should take interest costs into account when calculatingthe total cost of onwership. Furthermore, suppliers may offer hire-purchase agreement, in which a company avoid upfront investment. Instead, they pay in installments and gain the right to purchase the asset when fulfilling the last payment obligation.
Due to the high value of capital purchase, buyer needs to prepare a detailed and precise business case to get executive management’s approval. In the business case, buyers need to demonstrate a cost and benefit analysis, risk management strategies, financial ratios, financing options…To do that, a cross-functional team is required to contribute diverse expert viewpoints, including input from the finance, legal, and technical department….Normally, capital purchase tends to be unique and non-recurring, so buyers can not depend on the historical purchasing data. Each new acquisition must be evaluated independently.
Negotiation can be complex and extended, as buyers need to clarify a lot of information revolving around the capital purchase. There is no guarantee that the investment will yield the expected benefits, so buyers need to work closely with suppliers and other stakeholders to assess and quantify potential future benefits.
When sourcing a construction contractor to build a factory or a warehouse, buyers often use construction model contracts such as FIDIC or JCT, as these contracts are designed to fairly distribute responsibilities and risks between both parties. Without such frameworks, buyers may overlook key clauses, leading to future conficts and potential disruptions.

OPEX

OPEX refers to the purchase of operational items that are used for day-to-day business operations. Unlike CAPEX, OPEX is recurring costs that keep the business running smoothly. OPEX includes items and services necessary for maintaining business fuctions such as

Rent and utilities
Office supplies
Components and raw materials
Maintenance equipments and spare parts
Salaries and wages
Software subscriptions

What are the common features of capital purchases?

Operational purchases affect operating margins, so buyers need to manage costs efficiently to optimize a company’s profitability. Price and cost analysis should be conducted regularly to ensures that every purchase delives value for money.
Buyer often use framework agreement to manage operational purchase, in which all suppliers are pre-qualified. When a company raises a need, buyers can issue a request for quotation or conduct a mini-competition to select the supplier offering the best price.
Supplier management is an important task in sourcing OPEX, as any delays or any defective products can disrupt business operation, potentially leading to lost sales and inefficient use of resources…Effective supplier management is essential to ensure smooth business operation.
A company should use electronic systems such as automated ordering system, MRP or ERP to manage operational expenditures efficiently. This helps reduce repeated tasks, administration workload…

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