Uncommon Sense: Ready to relocate? Bet not!
Many firms today are relocating, planning to relocate or thinking about it. The impetus varies, but generally it includes reducing labor costs, getting out of high tax areas and, in some cases, competitors are doing it so it must make sense.
Relocating a plant can be risky business and is not for the faint of heart. It should be approached with trepidation. If you decide to relocate, what does make sense is to seriously consider taking one or more of the following actions at the same time, even though they may not actually be part of the relocation scheme.
Specialize in your high revenue products and leave the others to subcontractors. Most managers spend too much time worrying about products that contribute little or nothing to the revenue stream. One firm had a line of products, made from exotic materials, that was only a small fraction of total output but absorbed an inordinate amount of management time. Outsourcing it became an important element of relocation-even though it had nothing to do with relocation per se!
Review processes and functions to identify candidates to get rid of. One firm found discontinuing an injection-molding operation produced benefits. Identifying all the costs revealed that they could buy the components much cheaper than making them, and selling the equipment changed a fully depreciated asset into cash. Another firm cut costs significantly by outsourcing building, grounds and equipment maintenance. The firm outsourced the work locally to prove it would work; finding permanent replacements became part of the site selection criteria. In both cases, the idea of relocation made the changes more palatable to those who would have objected under different circumstances.
Take a hard look at opportunities for improving the remaining processes and functions. One firm found it could benefit by replacing or upgrading outdated equipment. New equipment would be delivered after the move, but upgrading could begin immediately, producing benefits quickly. Another firm chose to rethink the employee benefits package; there was much less resistance to the revised package than there would have been without the impending relocation.
These actions all change the amount and configuration of the floor space you'll need, both in the factory and administration. The composition and size of the labor force, administration and support staff may change as well. This may alter some site selection parameters, but better now than after the site selection team has made its recommendations!
Having done all this, test the operating dynamics by creating a mathematical model of the operation. This will let you precisely size in-process and finished goods inventories, and optimize working capital needs. It will also let you optimize your workforce, by matching people to tasks. I can guarantee you will find you need a smaller workforce, one that will be more productive, even after adjusting for outsourcing and efficiency gains.
While all this is going on, someone in your firm is planning the move in detail. Someone else is doing site selection based on the new criteria-a smaller building, smaller workforce and better financial performance.
Good grief; it could be a miracle! When you've factored all the changes and improvements you've already gained into your financial statements, compared those with the projected financials after the move, then factored in the risk that the move won't go as planned, then doubled the projected cost for the move, perhaps you'll find you will be as well off staying where you are!
What's your opinion? Whether you agree or disagree, Donald B. Ewaldz will welcome your comments. You can contact him via the Bourton Group's Web site. Just point your browser to www.bourtongroup.com and click on "Contact Us."