Last month’s manufacturing blog, argued that the most influential site selection driver for manufacturing projects in today’s environment is actually speed-to-market. This served as the basis for explaining why so many companies initially focus their site selection efforts on existing buildings rather than building facilities on greenfield sites.
The difference in timeline from constructing a building on a greenfield site versus retrofitting an existing building can be as short as six months or more than 12 months depending on the building and site in question. Based on current market conditions and recent project experience, Site Selection Group estimates the average time saved is nine months for most production projects. When discussing this topic with our manufacturing clients, we refer to this nine months as the “window of time savings.”
When manufacturing companies deem it essential to take advantage of the window of time savings, such as meeting contract commitments to customers or taking advantage of industry cycles, they are usually relying on being fully operational nine months earlier than if they built on a greenfield site.
However, there are several factors that companies often overlook that will compress the window of time savings which can seriously compromise project milestones. Site Selection Group refers to this as the “diminishing time paradox.” Although these can be mitigated through comprehensive site selection strategies, the following is a summary of the top four factors that contribute to this paradox.
1. Hiring, training and ramping up workforce to full capacity
Aside from professional hires and those relocating from other operations, companies are not able to advertise open positions until a location is secured, thus commencing the hiring the process. Tightening workforce markets across the United States make it difficult to expedite this hiring process, especially when manufacturers are seeking to scale a new workforce that possesses coveted skill sets such as machine operators, welders and industrial maintenance technicians. Therefore, the process has to run its course to full maturity, which can compromise a portion of the window of time savings.
2. Lead-time for machinery and equipment
Most manufacturers are well aware of the impact equipment lead times will have on the overall timeline of getting their project operational. However, Site Selection Group routinely sees two unanticipated factors that diminish certainty from the lead times that were initially established at the front end of projects. First, companies can be hesitant to order equipment until they are 100% certain where the destination will be. Secondly, delays in delivering equipment by equipment manufacturers is becoming more common in a hyperactive market.
3. Extensive building retrofits
Site Selection Group routinely observes companies being shocked by the time and expense required to retrofit second generation buildings. Unfortunately, the reality of this increasing trend is not typically accepted until they engage professional design and engineering services to evaluate a building, which is often late in the process. Once design, permitting and retrofit construction take place, the window of time savings has been partially compromised.
4. Establishing supplier base
Optimizing the inbound portion of the supply chain is often a top priority when manufacturers establish a new production location. However, establishing solid contracts with vetted suppliers can prove to be a daunting and aggravating task. And despite a company’s intent to coordinate new supplier acquisition with site selection and building retrofit timelines, they are only one party of many that can affect this process.
How do companies protect itself against the diminishing time paradox?
Simply stated, very rarely is the window of time savings really nine months. Despite detailed project planning, external factors such as the four identified in this blog have a way of diminishing the value proposition of an existing building. And, there is not a more prominent fallacy in industrial site selection than shifting from an existing building strategy to a greenfield strategy late in the site selection process. To be clear, Site Selection Group does not recommend abandoning an existing building strategy for those projects that have speed-to-market concerns. Rather, we use this as a point of emphasis to demonstrate the importance of running parallel strategies that consider existing building options and greenfield sites. There are more companies that care to admit to it that they compromised the optimal location by chasing the window of time savings that slowly evaporated.