Logistics, Warehousing & Distribution

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Building Logistics: Planning for Facility Expansion Needs

31 Mar, 2004

By: Lawrence Wal

When the time comes to consider expansion of a manufacturing facility, it is usually a positive sign that signals growth and success. However, unless the manufacturer plans the expansion wisely, disaster can ensue.

In reality, thousands of decisions face the manufacturer who is at the crossroads of potential expansion. Unfortunately many of these ‘manufacturing types’ aren’t entirely aware of the questions they need to contemplate, nor the order in which each question should fall. Even those firms that are aware could easily become overwhelmed by the data that needs to be collected or the information that needs to be analyzed.

Consider All Options

Companies whose operations are constrained because they have outgrown their current facilities and machinery have several options to consider before building new facilities. They can outsource a portion of their operations, hire a logistics company to handle distribution, employ additional shifts, purchase better manufacturing or material handling equipment, invest in more efficient computer systems or lease a new facility. However, each of these options has its set of pitfalls.

Outsourcing and third-party logistics may compromise quality, increase costs and result in loss of control over production and delivery schedules. Even in geographic areas where a competent workforce is available to work second and graveyard shifts, the resulting increase in capacity may require additional storage space. More efficient equipment and systems can maximize capacity and storage space by increasing inventory turns and decreasing cycle times, but this option may only be a temporary solution until space becomes constrained once again.

A leased facility not only increases costs, but also may not suit the company’s needs exactly and involve additional logistics to ferry materials back and forth. One thing is for certain: Deciding simply not to grow further is as poor an option as is procrastinating. The problems will only get worse, resulting in inefficiencies, inferior quality, increased employee accidents and low morale.

Corporate Growth

For many manufacturers the only realistic solution to space and equipment constraints is to build a new facility, with the additional option of leasing a facility back from a developer rather than investing their own money in a building project. Unfortunately many companies wait until the last minute to reach the decision to expand and then leap before they look. Only advance planning with a thorough needs analysis can ensure that a company is playing with its cards facing up when it comes to the design and implementation of a new facility. A needs analysis establishes the design requirements to meet future operations – labor, machinery and building – and ensures that the new facility meets both short-term and long-term needs.

Needs Analysis First

A needs analysis, which must precede the hiring of architects and designers, considers these factors:

  • Planning horizon. How far into the future should the plan fulfill the company’s requirements? Most companies today go with a five-year plan. It’s usually not cost-effective to build space that will not be needed in the first five years.

  • Expected growth rate. At what rate is the company growing? How much expansion is necessary? What led up to the decision to expand? These are examples of questions that ultimately aim to predict what type of growth can be expected if the expansion occurs. The expected growth rate is also determined by analyzing the past. History is a fairly reliable tool, as long as it’s considered along with prevailing changes, such as whether or not new product lines have entered the mix or whether the purchase of new machinery is expected.

  • Seasonal factors. Does the demand for the product lines vary or remain constant throughout the year? If there is no downtime during the year, how will the plan be implemented? For example, will the company build a backlog of inventory ahead of time so it can shut down operations temporarily while moving? How long will it take to ramp up again? For example, lawn mower manufacturers really ramp up during the winter to be sure every product is available and distributed before the summer arrives.

  • Conduct a SKU (Stock Keeping Unit) profile analysis. It’s hard to believe any kind of facilities planning can be done without knowing the patterns of a manufacturing facility’s SKUs. What moves with the most consistency? What moves the slowest? What would cost less to outsource? Which batch sizes can be reduced? What are the economic order quantities? What are the proper safety stocks? Remember, manufacturing and logistics must be seamlessly integrated. Clearly these questions are but a small sampling of what is uncovered with a SKU profile analysis.

  • Resource Planning (ERP) and Warehouse Management System (WMS). These technology-based support systems represent significant potential savings for a manufacturing operation in that they positively impact a manufacturer’s inventory levels and inventory turns. Consequently, these systems help dictate how much product is needed and the space necessary to store it.

  • Methods and processes. Will methods and processes remain the same or can improvements be made, perhaps with new equipment? If so, this will represent an expense in the short-run; however, over time this new equipment will likely shorten cycle times and increase capacities. Build a model by asking how the operation will change as a result of the expansion.

  • Labor requirements. How much labor will be required or saved? Often a manufacturer makes the decision to expand a facility as the operation is undergoing automation. However, automation could likely reduce the number of employees required – which may largely reduce the amount of space required, depending upon the size of the new equipment. Be sure each scenario is considered.

  • Expansion or renovation? What are the options to expand? Is it better to add on to the present facility, build an entirely new structure or lease an already established building? Is there room to expand on site? Is land available? Are there environmental regulations that prohibit expansion on site? Before venturing into the world of relocation, first it’s important to rule out the possibility of expanding onsite or renovating an existing facility. Typically either of these options would be a manufacturer’s first choice. Unfortunately many have to face the fact that the existing site simply doesn’t lend itself to expansion or renovation.

  • Phasing. Should the expansion be accomplished in phases to spread out costs and minimize the disruption to operations? When there are cost constraints, an expansion is often divided into different phases to avoid such extreme financial burden. Phasing is the smartest way to go when budgets are tight, especially because it allows more decisions to be made according to actual versus expected growth.

  • Capacity requirements. How many machines are required to support operations? What types of machines? How much storage space is required? What kind of space? The determination of capacity is the most important step in a needs analysis. In a manufacturer’s world, expansion problems rarely come from inability to produce what is required. Instead, space becomes the issue at the points of distribution and fulfillment. Having enough room to store products and the capacity to get them where they need to go are key issues that speak volumes about a manufacturer’s ultimate decision.

  • Financial analysis. Cost/benefit and make/buy analyses are essential components of a needs analysis. They answer these questions: What is the cost of a new facility? Does the company have the capital or financing to proceed with the expansion or move? Is an expansion or move to a new facility really justified by the expected ROI and cost savings? What is the most viable option – leasing, buying or leaseback from a developer?

Getting Help

When considering an expansion project or move to a new facility, one of the first problems a manufacturer may encounter is lack of personnel to perform the needs analysis. Unfortunately, many executives and managers are so busy putting out the day-to-day fires that they don’t have time to look ahead at long-term space and equipment needs, perform a needs analysis and plan an expansion. If no one really has the time to sit down and discover what the issues are, like what it costs the company to continue operating under current conditions, and what the company really needs, it pays to bring in planning experts to perform the needs analysis.

Proactive Planning Pays

Advance facility planning, including a thorough needs analysis, maximizes current and future growth options because it allows more time to explore all the issue and options. The further a company is able to plan ahead, the more time it has to perform a complete analysis, make revisions, change direction, obtain input and feedback from a range of constituencies, assemble the right teams, select the right equipment and design the most efficient plant or facility.

Keeping Up With Lean Manufacturing

Advance facility planning can actually complement business efforts to create a “leaner” environment, provided it’s applied appropriately. Since no two manufacturing environments are identical, neither is the way the “lean” philosophy is applied. Basically, today’s lean manufacturing proponents seek to eliminate manufacturing waste by reducing inventory holding costs, as well as by making continuous improvements to maintain production quality. However, when these goals are being established, how much consideration are manufacturers giving to corresponding facilities planning requirements?

Making the Manufacturing/Distribution Connection

Once the assessment is done, a clearer snapshot of the operation reveals a more global perspective about the next steps to take in the facility planning process. Al Tecero, president of Gulf Coast Industrial Automation in Houston, Texas, helps customers solve production line problems by helping them fit the right pieces together to make sure it flows smoothly. “The key to success in manufacturing is finding bottlenecks and relieving them,” says Tecero. “However, with regard to facility planning, customers miss the boat once they lose sight of the global perspective.” This is something akin to the domino effect, where every decision made on the front-end will ultimately impact the backend.

Most companies are not limited by manufacturing capacity. Quality control and production planning must be within acceptable parameters; the need is logistics in sync with manufacturing. Manufacture then distribute, don’t store, is the key to success.

Avoid the Big Mistakes

Manufacturers who invest time in considering these guidelines make wiser expansion decisions in the end. They may not eliminate all mistakes, but they certainly reduce the ones that can have the most costly impact on their long-term operations such as:

  • Predicting an unrealistic growth rate

  • Misjudging storage capacity to support the estimated growth

  • Misjudging the means required to carry out fulfillment

Most manufacturers agree that, in the end, meeting customers’ needs is really the quickest way to plan for success. For that reason especially, keep a watchful eye on how close an operation may come to making one of these mistakes. Falling victim to such oversight makes existing plans short-lived and obsolete.

Understanding the Construction Process

For those manufacturers that would like to get in on one of the best-kept secrets when it comes to facility expansion, consider gaining a deeper understanding of the construction process. It may sound like the last task any one has time to take on; however, the effort will pay off as decisions are made with increased confidence.

Don’t misunderstand; the recommendation isn’t to go out and take any classes. Instead, simply understand the process, especially because there are so many different types of companies that handle facility expansions – which dictates just as many different types of contracts. Yet, since expansion usually means some degree of construction needs to occur, learn to ‘follow the drawings.’ The way an architectural firm or design-build firm handles an expansion is explained largely by how many levels of contracts they require:

  • Concept: This drawing offers conceptual ideas in order to give the manufacturer a clear idea of what can be expected.

  • Preliminary: This drawing breaks down pricing required by each phase of the expansion.

  • Engineer: This is the blueprint to which a facility is built. It breaks down every level of construction.

  • Final: This drawing is created post-construction, the ‘as-built’ rendition.

Let the Considerations Begin

Start from scratch? Expand on site? Buy an existing site and renovate? Each decision comes with its own set of questions that are mandatory to contemplate. Manufacturers that are interested in expansion, but equally as interested in cost-efficiency and future growth owe it to themselves to weigh the options. Advanced Facility Planning is a safe and all-encompassing way to cut through the morass and expand in the right direction.

 

About the Author

Lawrence Wal

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