CAPEX vs OPEX in Supply Chain: Key Differences and When to Choose

CAPEX vs OPEX in Supply Chain: Key Differences and When to Choose

Core definitions

• CAPEX (Capital Expenditure): Money invested in long-lived assets that enable operations (assets you own or control). Recognized on the balance sheet and expensed over time via depreciation/amortization.
• OPEX (Operating Expenditure): Day-to-day costs to run the operation. Recognized immediately on the P&L in the period incurred.

Side-by-side comparison

Dimension	CAPEX	OPEX
Nature	One-time investment creating/adding to assets	Recurring operating cost
Typical SC examples	Building/expanding a DC; racking & mezzanine; conveyors/ASRS/AMRs; forklifts purchased; on-prem WMS/ERP licenses & servers	3PL fees; transportation line-haul; labor; maintenance contracts; SaaS WMS/TMS; equipment leases/rentals; utilities
Accounting	Capitalized, then depreciated	Expensed in period
Cash flow	Large upfront; impacts Free Cash Flow at purchase	Spread over time; improves cash timing predictability
KPI impact	Increases asset base → may reduce asset turn/ROIC but improves EBITDA (depreciation below EBITDA)	No asset added → higher EBITDA sensitivity (expense above EBITDA); generally better asset turn
Flexibility	Lower (locked into asset/technology)	Higher (scale up/down with demand)
Risk profile	Tech obsolescence, under-utilization, residual value	Price escalation, vendor lock-in, service performance
Governance	Capex committee, ROI/NPV/payback gate reviews	Budget owner discretion; contract governance & SLAs
Tax	Depreciation shields over time	Immediate tax deduction (jurisdiction-dependent)

Note on leases (IFRS 16/ASC 842): Many equipment/real-estate leases now create a right-of-use asset on the balance sheet with lease liabilities; P&L shows depreciation + interest instead of pure OPEX. EBITDA typically improves vs. pre-IFRS-16 accounting, but leverage and asset base rise. Always align with your finance policy.

Supply-chain examples by domain

• Warehousing
  • CAPEX: Racking, shuttle/ASRS, AMRs, dock levelers, WMS perpetual license, building fit-out.
  • OPEX: 3PL warehousing fees (inbound, storage, outbound), labor, MHE rentals, WMS SaaS subscription, facility utilities and maintenance.
• Transportation
  • CAPEX: Buying trucks, trailers, yard tractors, in-cab telematics hardware.
  • OPEX: 3PL/4PL transport tariffs, fuel, tolls, driver wages, TMS SaaS, fleet leasing.
• Inventory
  • Inventory itself is working capital (a current asset, not OPEX).
  • OPEX components: carrying cost (capital charge, storage, insurance, obsolescence, shrink), handling.
• IT & automation
  • CAPEX: On-prem servers, fixed scanners/portals, PLCs.
  • OPEX: Cloud compute, SaaS (WMS/TMS/YMS), support contracts.

How it affects your KPIs

• EBITDA/Operating Margin:
  • CAPEX favors EBITDA (expense recognized as depreciation below EBITDA).
  • OPEX reduces EBITDA directly.
• ROIC/ROCE & Asset Turnover:
  • CAPEX increases invested capital → pressure on ROIC and asset turns unless productivity gains are strong.
  • OPEX keeps the balance sheet lighter → better turns, potentially higher ROIC.
• Cash Conversion Cycle (CCC):
  • CAPEX doesn’t enter CCC, but higher automation may reduce cycle time and labor, indirectly improving CCC.
• Unit Cost (per case/order):
  • CAPEX can lower steady-state unit costs at high volumes.
  • OPEX can track volume closely and avoid high fixed costs at low volumes.

Decision framework (practical)

1. Stability of demand & product mix
   • Stable/high volume → CAPEX more attractive.
   • Volatile/seasonal → OPEX for flexibility.
2. Time horizon & tech maturity
   • Mature, slow-changing tech (e.g., pallet racking) → CAPEX.
   • Fast-evolving tech (e.g., robotics, software) → OPEX/SaaS/lease.
3. Total Cost of Ownership (TCO)
   • Compare TCO_CAPEX = Purchase + Install + Maintenance + Energy + Labor ± Residual − Productivity gains
     vs. TCO_OPEX = Fees (volume-linked) + Indexation + Penalties/SLAs − Productivity gains over the same horizon.
4. Financial tests
   • NPV/IRR/Payback on CAPEX; sensitivity to utilization, wage inflation, and failure modes.
   • For OPEX, model price escalators, minimum volume commitments, and termination terms.
5. Operational risk
   • Single-point failure (e.g., ASRS outage) → add redundancy or hybrid OPEX buffer.
   • Vendor concentration → dual-source or exit clauses.
6. Accounting & policy
   • Align with capitalization thresholds, lease accounting, depreciation lives, internal hurdle rates.

Quick “rules of thumb”

• Choose CAPEX when: demand is predictable, asset will be >80% utilized for most of its life, and automation removes ≥20–30% of variable cost with payback ≤ 3–4 years.
• Choose OPEX when: demand is uncertain, speed-to-launch matters, or tech could be obsolete in ≤3 years; or when preserving cash/ROIC is a priority.
• Hybrid models work well: e.g., light-CAPEX racking + OPEX AMR subscription; own core DC, outsource overflow; lease MHE, buy racking.

Example scenarios

• New DC with growth uncertainty: start with 3PL (OPEX) and SaaS WMS. Once volumes stabilize, transition to owned site (CAPEX) with targeted automation.
• Forklift fleet refresh: leasing (OPEX/ROU asset) with full-service maintenance can beat purchase when utilization is moderate and downtime risk is costly.
• E-commerce surge: OPEX for pick-to-light/AMR “as-a-service” to absorb peaks; reassess for CAPEX if sustained for ≥12–18 months.