Five Tips for Implementing a Post-Pandemic Consolidation Strategy
by Josh Bays, on Feb 24, 2021 8:40:43 AM
Are manufacturers pushing the ‘reset button’ post pandemic?
Up until the widespread outbreak of COVID-19, the nation’s industrial production index, which measures real output for manufacturing, mining and utilities, had an increasing annual rate of change since the beginning of 2015. And despite a pandemic-caused recession, several sectors have remained quite resilient, namely food & beverage and consumer goods. But for many manufacturers that were slowed by the pandemic, the unprecedented year of 2020 prompted them to address inefficiencies in their production footprints as a result of the expansionary growth, especially those active in mergers and acquisitions.
Site Selection Group, a full-service location advisory, economic incentives and real estate services firm, helps our clients align their location strategies with economic cycles. A downturn affords manufacturers the time to pause and evaluate and then rid themselves of the inefficiencies in their business.
Site selection strategies for consolidations
The benefits of effective consolidation strategies include reducing operating costs, improving sourcing, optimizing logistics’ networks and eliminating redundancies. Derived from our experience, the following are the top five site selection tips for any manufacturing company contemplating consolidation.
1. Allow sufficient time to develop and implement a manufacturing consolidation plan
The adage that the most valuable achievements take longer than expected certainly applies to developing and implementing a consolidation plan. Understanding the effect that consolidating manufacturing operations will have on productivity, supply chain, workforce and financial performance is a complicated process that involves the evaluation of countless scenarios. It typically requires eight to 12 months just for planning before a company is ready to implement its consolidation plan, and that timeline could be longer if a company is consolidating outside of its existing footprint. Site Selection Group recommends starting the research and planning phase as early as possible.
2. Assemble the right team from the start
An effective consolidation strategy requires the input and hard work from a variety of corporate disciplines. Internal confidentiality notwithstanding, it is Site Selection Group’s experience that the key players should be assembled as a project team from the beginning. This includes key members from executive leadership, operations, finance, tax, real estate, human resources, supply chain/logistics and engineering.
3. Do not forget to account for less-than-obvious cost items
Although we prefer to be engaged to help in the planning strategy, Site Selection Group is often retained by companies after they have planned their consolidation strategy to a new location. It’s at this point that they need help finding that optimal location and securing economic incentives and real estate. In instances like this, we sometimes see mistakes made during the planning phase that come to light during implementation. Candidly, it is surprising how many companies forget to account for hidden costs. These include items such as moving costs, dips in productivity, transaction costs and re-payment of economic incentives.
4. Give yourself flexibility because consolidating operations is a long-term value proposition
When consolidating operations, it is critical that the new location support any number of unexpected changes that your company might face in the future. For example, ensure that the community has the workforce characteristics and pipeline that is compatible with future lines of business that could be relocated. Since dirt is relatively inexpensive compared to machinery, equipment and human capital, Site Selection Group recommends investing now by acquiring more land than initially needed to support future expansion. Further, make sure to structure economic incentive packages in a way that maximizes the opportunity for incremental growth that might not be initially solidified.
5. Be wary of short-term benefits that could tempt you into a bad location decision
As noted above, consolidating production operations is a long-term value proposition and should be evaluated as such. All too often, we’ve seen clients tempted to make bad location decisions by being overly influenced by short-term incentives that burn off over time and good real estate options in less attractive markets. Conversely, it is common for companies to discount locations that have an immediate hurdle but offer the best long-term value proposition.