OPEX

OPEX (operating expenditures) is the ongoing cost a company incurs so that its plant can operate and produce day to day. Unlike CAPEX, which creates something lasting, OPEX does not build anything new, it keeps the business running. These expenses recur every month or every year for as long as the installation is in operation.

In a production plant, OPEX includes, among other things:

• raw materials and ingredients used to make the product, as well as packaging,
• electricity powering motors, pumps, heaters and automation,
• process utilities: steam, chilled water, compressed air, process water,
• wages for operators, process technologists and maintenance staff,
• cleaning and disinfecting agents used to clean the installation,
• wear parts that wear out during operation, such as seals, filters and bearings,
• inspections, servicing and minor repairs,
• software licences and subscriptions, if they are paid on a recurring basis,
• waste and wastewater disposal.

Fixed and variable costs

Some OPEX depends on production volume and some does not:

• variable costs rise with production: the more product, the more raw materials, energy and packaging,
• fixed costs have to be paid regardless of how much is produced, such as wages for permanent staff, inspections or subscriptions.

Why OPEX matters

• It is accounted for immediately. In accounting, OPEX is expensed in the period in which it is incurred, rather than being spread over several years like CAPEX.
• It determines the unit cost of the product, meaning how much it costs to produce one bottle, one jar or one kilogram of pet food. This directly affects margins and competitiveness.
• It adds up over the years. An installation usually operates for a dozen or several dozen years, so even a small difference in operating costs eventually adds up to amounts comparable to the price of the investment itself. That is why, when choosing a solution, companies look at the total cost of ownership: the purchase price (CAPEX) plus all operating and maintenance costs over the entire service life (OPEX).
• It is shaped at the investment stage. Choices made when designing an installation, such as which equipment, what level of automation and how cleaning is designed, determine operating costs for years.

Example: A cosmetics plant produces creams and lotions. Its monthly OPEX includes:

• oils, emulsifiers, active ingredients and process water used to make the creams,
• jars, tubes, labels and cartons,
• electricity for agitators, homogenisers and pumps,
• steam for heating the phases in the reactors and chilled water for cooling the cream after emulsification,
• agents for cleaning reactors and piping between batches,
• wages for operators, process technologists and quality control lab technicians,
• replacement seals for pumps and homogenisers,
• collection and disposal of cleaning wastewater.

Example of how an investment affects OPEX: A sauce manufacturing plant cleans its tanks manually after every recipe change. This takes a long time, uses a lot of water and cleaning agents, and every cleaning cycle is slightly different. The plant decides to invest in an automated CIP system. This is a one-off expense, meaning CAPEX. In return, the system doses exactly as much water and cleaning agents as needed, recovers some of the cleaning solutions for reuse and shortens cleaning time. The costs of water, chemicals, wastewater and labour, meaning OPEX, go down, and the line spends more time producing instead of standing idle for cleaning.