Economic Development -- Time Is Money

Dec. 21, 2004
Companies and government officials are finding ways to quickly plan and build additional capacity.

Warehouse space limitations spooked Hershey Foods Corp. more than goblins did last Halloween. When the maker of Hershey's chocolates, Twizzlers, and Reese's Peanut Butter Cups failed to bring enough candy to 7-Eleven and Wal-Mart stores, the giant retailers turned to other confectionery makers. At the crux of Hershey's problem was the installation of an enterprise-resource-planning system and space constraints caused by a large acquisition as well as the success of Hershey's own burgeoning product line. Although it gained approval from local officials for a new $50 million distribution center in June 1999, the candy maker could not begin operations there until the spring of this year. That was not soon enough. By Halloween Hershey couldn't meet customer orders on time. Time is money. Good managers can tell you the profitability of their operation on a weekly, daily, even hourly basis. But in today's booming economy many companies don't have enough facilities to meet demand. Hershey is not alone. Building-materials maker USG Corp. ran its factories at capacity last year and still could not meet demand for its sheetrock. It distributed wallboard by allocation and missed market opportunities. Some companies are finding ways to quickly add capacity. Corning Inc.'s Photonic Technologies Div. may have set a company record. It shipped product 180 days after it began looking for new manufacturing space. The search of 16 states started in January, and by April management had announced the acquisition of a Northrop Grumman Corp. facility near Scranton, Pa. The 115,000-sq-ft complex was retrofited and by July product-optical amplifiers that help boost bandwidth-was shipped. Projects that took years to finish in the 1980s and 1990s now take months. "What was once an 18-to-24-month build-out period has been condensed into 10 months," observes Steve Kohler, who directs the Governor's Action Team for Pennsylvania, an agency that has implemented programs to speed the site-selection process. Pennsylvania introduced the Select Site program that has prequalified more than 100 communities for manufacturing, distribution, and research and development. Charleston, S.C., also has developed industrial parks with pre-permitted sites. In Florida legislation requires state permits to be delivered within 90 days for high-economic-impact projects. In addition to taking advantage of state programs meant to help manufacturers over bureaucratic hurdles, pressed executives have developed other approaches to quickly add manufacturing capacity. First, capital allocation is being made earlier. Companies are condensing or skipping altogether lengthy studies and myriad scenario models and committing money to the division in need of space or capacity. Managers also create parallel tracks of activity for each project. Several teams are assigned to different tasks including finance, permits, design/construction, and recruitment. Work on each occurs simultaneously. Regular conference calls are held, e-mail hums between team members, and decisions are almost immediate. Corporate developers in need of speed conduct project management over the Internet. Using software from Primavera Systems Inc. or Cephren Inc., they can post information at a secure site and automatically notify associates of changes. A history of revisions is available. To keep other parts of the corporation informed, managers send out newsletters and construction photos. They even mount live-action cameras at the project site and feed video to interested parties. Innovations such as software tools that simulate the production process and other virtual-manufacturing techniques eventually will speed up facilities planning. Corning already is trying to break its record with the start-up of its $80 million photonics facility at the former ABB Ltd. building outside Rochester. The project began with a 30-plus state search in May, and the factory is expected to begin production in October. With any luck, Corning will avoid the goblins that haunted Hershey last Halloween.

James A. Schriner, based in New York, directs location strategies for Fantus Consulting, a division of Deloitte & Touche LLP.

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