Plant Closure, Relocation And Consolidation

July 29, 2005
How to do it right.

Fred is a Senior Consultant for the Bourton Group, LLC that specializes in designing and implementing manufacturing solutions.

In these times of increasing competitive pressures, management is continually challenged to reduce business complexity and cost while maintaining quality and on-time delivery. Many organizations evaluate ways to realign their manufacturing capabilities and the related facilities to accomplish these goals. Often, however, both the planning and execution of this complex undertaking are done poorly, resulting in lost revenue, increased cost and lost market share.

With over 40 years of experience working with manufacturing management on strategic and tactical issues, including plant and product relocation efforts, I believe there are seven keys to success in such projects, which are summarized below.

1. Always ask, "Is this move really necessary?" It is surprising how often plant and product moves are assumed to be the only solution to a cost or service problem, when in fact, there are many alternatives. Can the plant be improved in-place, through capital investment, lean implementation, or other process improvement? Can the work be outsourced instead of moved? Can the product line be rationalized to reduce required capacity and complexity? ...or some combination of all these alternatives?

Once it is decided that a move or consolidation is the right solution:

2. Never view such projects as simply picking up processes in plant A and setting them down in plant B, although this is often what happens. Adding to the project complexity is the fact that, in a multi-plant environment, you can't simply focus on one plant because there are complex relationships and dependencies among the various plants. Move/consolidation projects must be viewed as strategic in nature with long-term marketing and manufacturing implications. For example, it makes no sense to move a product from a loaded plant to one that has available capacity when product demand is evaporating. In this case, the product should be dropped from the line, or perhaps moved offshore if this will reduce costs to the point where demand can be maintained. And, keep in mind that moving offshore is no panacea. It has its own set of issues and potential disasters if not done carefully with the appropriate products, planning, product support and effective technical and administrative input and management.

3. Make sure receiving plants can accommodate all operating requirements for the new products. Information system differences between the sending and receiving sites are often an issue. If orders for the new product cannot be entered, the move will grind to a halt. Business system problems are often more complex and expensive to fix than any problem associated with the physical move or the realigned manufacturing processes.

4. If people are being moved with product, recognize that cultural and operating differences between the sending and receiving site must be recognized and accommodations made to prevent conflict in the merged enterprise.

5. Conduct an objective and brutal product line rationalization before any product or plant move. The enterprise must ask: "Why are we making the line we currently offer? Is the margin on the product line(s) acceptable? Should we be using this capacity to make something else? To what extent has product proliferation taken over, choking our ability to produce and sucking margin from the winners to the losers?"

6. Define the risks associated with the move and how their impact will be minimized. Risks are often not addressed, even in passing. For move success, every area requires a contingency plan, covering such things as data and documentation, customer and supplier issues, and staffing/people issues, such as retention plans and bonuses for long- and short-term requirements, training needs, budget, and others.

7. Plan and proactively manage the move to minimize identified risks. Research and understand the key elements of an effective plan and move management organization, as well as how the organization must be managed for success. The quality of move team leadership is central to the success of the undertaking.

Plant and product line moves are always more difficult than planned or anticipated. By acknowledging the risks upfront, developing contingency plans for them, and proactively managing the move, the project should succeed in spite of the surprises you are sure to encounter along the way.

Fred is a Senior Consultant for the Bourton Group, LLC that specializes in designing and implementing manufacturing solutions. For more than 40 years, Bourton Group has been developing and implementing custom-tailored solutions to manufacturing challenges.

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