The Move to a Lean New World

July 1, 2011
Some facilities don’t lend themselves to a lean philosophy. Such sites may have to be abandoned for more suitable accommodations. But don’t leave until you’re ready to arrive.

In the current business environment, companies are ramping up plant and distribution center relocation. In the past, the high costs associated with such moves and the associated business interruptions made relocation a last resort. Today relocating can offer many benefits to offset these costs.

Historically, businesses were formed in a geographic area based on proximity to their customers or simply based on the preference of the owners. Expansion of the business meant expanding the local facilities, or purchasing space nearby the existing facility. In one facility I managed, the “building” was actually nine buildings cobbled together over the course of 120 years. It had 27 different roofing surfaces and was heated by five boilers. The costs associated with maintenance and utilities for a building of this type over time became a significant issue. Relocation became an obvious opportunity to reduce these costs.

Analyzing the Move

The first step is analysis to evaluate the costs and benefits of a move. This is largely a matter of compiling the costs associated with the facility and challenging each component with the opportunity to improve.

Can the same work be done with less space? Leaner factories require less space to do the same work.

Even taxes are an opportunity. Municipalities have become very competitive in recent years to attract businesses and jobs and some cost improvements may be possible through tax incentives or abatements.

Are there opportunities to improve transportation costs? If a location presents closer proximity to customers and vendors there may be opportunities to improve your cost profile. Costs and availability of skilled labor may likewise have changed.

Also, facility layouts have a tendency to evolve over time. Often internal movement of materials is dictated by dock locations and other physical limitations of older properties. The opportunity to layout a facility with a logical flow to minimize material movement can yield better utilization of space.

What cost improvements are possible in utilities and building maintenance? Newer more efficient heating systems can greatly reduce operating costs and a newer building requires much less day-to-day maintenance. In one move we engineered, heating costs in a new facility for a whole winter were less than one month in the old facility.

Itemize Costs

The evaluation of these costs and real estimations of cost improvements supply the basis for comparing and weighing out the costs associated with a move. The costs of actually relocating an operation include everything from physically transporting materials and assets, to the site preparation at the new location. Electrical and air infrastructure, floor thickness, and other structural attributes of the facility need to be understood and completely evaluated to match requirements and to understand the true costs of a move.

Once the comparative costs have been estimated and evaluated, the tolerance of an organization for a move needs to be assessed. The tolerance of an organization is based on many factors. Selecting a new site is the most significant.

Selecting a Site

Site selection is a process unto itself. The distance of the move determines many of the potential costs.

Once a general geographic area has been selected, specific site selection can be aided by contacting economic development organizations in specific areas. There are whole groups of individuals on the local, regional and state levels whose main function is to attract businesses to their area.

Relocation in the same relative geographic area is obviously the easiest. Site prep and moving physical assets are just a matter of planning and execution. Relocating a facility to a new geographic area is much more complicated both in cost and the human factor. The greater the distance of the relocation, the more complexity is added.

Identify Key People

To whom will you offer positions in the new location? Everyone? No one?

What is the likelihood that people will relocate to a different area? This tends to be a very personal decision and extremely difficult to predict.

In every facility, there are critical individuals who are vitally needed to execute a move. Who are they? Identifying these individuals is perhaps the most important step once a decision is made to move. If it is unlikely these people will relocate, can they be offered incentives to accept a temporary relocation?

The costs associated with both temporary and permanent relocation for people also have to be estimated and factored into the move calculations. The fewer people who make the move, the greater the learning curve and potential inefficiency will be experienced with new employees in the new location. Even with well documented processes there will likely be a learning curve. Plan on the loss of certain “tribal” knowledge regardless of the extent of your documentation.

Lastly, for individuals who will not be making the move, what will be done in terms of severance and out-placement? This is the most difficult part of a move and treating people fairly is the right thing to do. Maintaining positive relationships will pay dividends throughout this process. The various people costs, either in the form of relocation, severance, redundancy of personnel or efficiency loss, need to be carefully considered and planned when evaluating a move.

Planning the Move

Once the decision is reached to move and a suitable site is selected, a detailed move plan needs to be devised. For this you need a complete understanding of the tolerance of the organization to an interruption of business.

I was once charged with moving a distribution center under the very clear instruction that it had to be absolutely seamless to our customer base. Specifically, we could not miss a beat in our order fulfillment process. This meant shipping from the old location up until Friday evening at 5:00 pm, and on Monday morning filling orders from the new location 250 miles away—a location staffed with new people. The costs of accomplishing this were not small.

The effort required people working all weekend on both ends and 75 truckloads of material movement. Nevertheless, by Monday morning we were filling orders from the new location. All situations do not require this type of effort but it is very important to identify those that do and the costs associated.

Hopefully your vendors will be equally careful when they move. When one of our key vendors decided to move its distribution facility, they announced it months in advance before shutting down for two full weeks. Obviously each of these cases represents a different level of tolerance in their business and each requires a vastly different set of plans.

To make a detailed move plan, a true understanding of the flow of the operation is needed. The old adage of how one goes about eating an elephant (one bite at a time) is most appropriate for this step.

The first step is breaking the operation down into pieces. This can be a complex process and is usually best accomplished by a team most familiar with the operation:

• What processes are tied together?
• What can be separated? For how long?
• Is there redundant capacity?
• Can inventory be created to cushion the impacts of the move?

Moving everything simultaneously can be done but it taxes scarce resources like skilled maintenance personnel. If the operations can be broken into pieces, it is much less traumatic to the organization and much less likely to impact business.

Once a move is broken down, it can be factored with other considerations like site prep in order to create a hierarchy, a sequence and, in turn, a schedule.

Getting it Done

Once the move plan is complete, execution becomes a straightforward exercise in project management. Understanding which events are on the critical path allows for acting and reacting accordingly.

A team should be put together to execute the project plan. The estimated costs associated with a move need to be carefully tracked and compared to estimates. There are many variables and while the key is in planning carefully, reacting to issues and creating countermeasures to adjust for the unexpected is even more important.

While moving a facility is a challenging process with certain risks, the potential rewards can significantly alter the profitability of an organization. The time and effort to correctly assess costs and risk as well as rewards can transform an operation from unprofitable to profitable in a relatively short time.

Thomas MacLean is vice president of operations for Osborn International, part of Jason Inc. He is also a member of MH&L’s Editorial Advisory Board.

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