The right strategy for your production footprint
Companies that have more than one production site are constantly faced with the challenge of ensuring the optimal allocation of all capacities, resources and competences. The increasing complexity of external events such as geopolitical conflicts makes this task and reliable long-term planning even more difficult. This makes it all the more important for affected companies to correctly adjust the levers they can influence independently in their own production network. After a detailed review of our project experience, different initiators have emerged that often precede a reorganization of the production footprint.
Realigning the production footprint:
Initiators and origins
The identified initiators for a realignment of the production footprint are typically a result of the overarching corporate strategy developed by management in advance. This is based on different origins.
Organic growth: Generate more output
Efforts to achieve organic growth are often driven by the fact that demand for the existing product portfolio has reached a level that can no longer be met with the existing options. Alternatively, the inclusion of new products in the production program can also lead to a review of the alignment of the footprint. In these cases, compatibilities in the existing network must be analyzed with regard to growth requirements or expanded capacities must be built up through greenfield projects. If this decision-making process is still very immature at the start of the project, we will support you with an initial feasibility study to consolidate the solution space.
M&A activities: Integration into an existing system
The sudden addition of new factories to the existing network is often the result of acquisitions or mergers. The takeover of market competitors, vertical integration or bundling of competences (joint ventures) are typical backgrounds. In order to avoid redundancies, consciously build up or create synergies, it is necessary to consider the sensible allocation of resources, expertise and capacities. Basic approaches already go hand in hand with the strategic decision-making process for an M&A activity. In the subsequent footprint project, we then plan the operational implementation together.
Consolidate existing locations
In our experience, consolidations are often preceded by two developments:
- On the one hand, divested or discontinued business areas can lead to production capacities being freed at the plant concerned and, without structural adjustments, economic capacity utilization can no longer be ensured.
- On the other hand, we are observing that historically evolved structures with small-scale factory systems (particularly in the SME sector) are characterizing considerations with regard to possible consolidations. Over time, the pressure of the operating business leads to the acquisition or rental of production and logistics space, often in the immediate vicinity of the existing plant. As a result, production processes and material flows are not always optimally equalized.
With the help of a realignment of the footprint, you can return to the operating optimum.
Site Consolidation
Reallocation of resources
The reallocation of resources can be a strategically sensible decision for various reasons. In many cases there is a cost drive. Optimized utilization of machinery or the bundling of prefabrication steps when creating variants at the end of the value chain are just two examples of how reallocation can have a positive impact on the cost structure. However, there need not be exclusively cost-orientated motives. Alternatively, the consolidation of competences can also be an important reason for a possible consolidation. The planned establishment of a center of competence (CoC) presents a concrete use case from practice.
Establish target picture and define solution space
The methodology we choose is determined on a project-by-project basis, but we believe that some steps in every production footprint project are fundamental. The definition of the final expansion stage and the operationalization of the associated target image are of great importance for the success of the project.
The decisive reference value is the production program over the course of the year up to the target year. The production program shows the development of quantities of existing and new products as well as the discontinuation of existing products. The chronological perspective allows the necessary expansion stages to be determined based on the target scenario. However, the production technologies used, possible outsourcing activities or regulatory framework conditions are also influencing factors that need to be defined in the first step. This step is rounded off by transparent communication of all limitations so that the solution space for the study is clearly defined.
Business case as a basis for decision-making
As important as the alignment of the target picture and solution space may be at the start, the business case is just as important as a basis for decision-making at the end of the project. This is where all the partial results of the individual project work packages are collated into different variants, which are evaluated quantitatively and qualitatively according to clearly defined criteria.
- Economic criteria are core elements of the business case. In addition to investments (CAPEX) and operating costs (OPEX), one-off costs are also assessed, such as those arising from relocations or the development of expertise.
- Qualitative factors should not be neglected in the assessment. The pricing in of implementation complexity and risk are aspects that are taken into account in the scenario comparison.
- Adaptability is another success factor for your footprint. Will all factories be multifunctional or will there be a division into highly efficient and maximally responsive production facilities?
Parallel site selection
If appropriate in this project, selected work processes can be parallelized. A location search is also a possible line that can be pursued simultaneously if the need for a new site is already evident at the start of the project. This range of solutions from a single source facilitates synchronisation at the interfaces.
Determine logistics costs through simulation
The reorganization of the footprint often also changes the logistical structures. Inbound and outbound flows are depicted differently in the future scenario and require an early estimate of the resulting costs:
- New requirements lead to a changed sourcing strategy
- Relationships in intercompany business will change in the future
- Customer markets will be supplied differently by the plant network in future
In order to take account of the changes in the relationship networks, a necessary dynamic in the evaluation is required above a certain level of complexity. Selected simulation software can be used to determine the implications for logistics cost structures and check sensitivities.
Simon Vehof
Business Development Manager
Matthias Göke
Managing Partner
