Issues in Facility Consolidation Analysis Presented by Jerry Szatan - - PowerPoint PPT Presentation

Issues in Facility Consolidation Analysis

Presented by

Jerry Szatan Szatan & Associates Business Facilities LiveXchange

Park City, Utah April 24, 2017

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Introduction

• Why consolidate facilities?
• What should you consider when

evaluating the feasibility of facility consolidation: benefits, costs, risks?

• Share and discuss experiences

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My Background

• Site selection & economic development

consulting – 25+ years

• Office, R&D, industrial projects
• Throughout North America & abroad
• Consolidation: HQs, R&D, back offices,

manufacturing, distribution

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Your Backgrounds

• Involved with a consolidation?
• Circumstances and goals??
• Initial and subsequent issues? What did

you learn?

• Your goal for session?

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Why Businesses Seek New Locations

• Expansion: add capacity
• Relocate existing facility

– Positive reasons – Negative reasons: “escape problems/ barriers”

• Realign facilities after merger, acquisition,

reengineering, change in business, etc.

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Site Selection Factors

• Operating costs:

– labor, utilities, real estate, freight, taxes, etc.

• Operating conditions:

– labor availability & quality, air access, transportation services, utility services, suppliers, industry cluster

• Quality of life
• Vary by industry & project

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Why Consolidate?

• Reduce capacity
• Lower operating costs
• Increase effectiveness, efficiency
• Achieve scale economies
• Eliminate duplication after merger,

acquisition

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Why Consolidate (cont.)?

• Better labor availability, quality, recruiting
• Change culture, more unified, teamwork
• Better internal communication
• Better training, more consistent procedure

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Relocation Costs & Risks

• Staff loss

– Overestimating retention – Don’t appreciate skills and cost to replace

• Business disruption and loss
• Moving costs
• True for any relocation; multiple locations

adds complexity, issues

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Merger & Acquisition Consolidation

• Operating costs and conditions are known

– But are they comparable?

• Facility space availability influences
• One-time versus ongoing operating costs

– Short term vs. long term horizon

• Politics, hidden agendas

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Comparing Apples & Oranges?

• Comparable: skills, costs, culture, real

estate, market access, exit costs

– Employees of acquiring company often “more valued” – know systems, products

• Scale increases - capacity can be an issue

– Labor, space, other

• Exit costs: liability? Buy-outs? Clawbacks?
• Similar timing?

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Consider a New Consolidated Location?

• Opportunity to start with a blank slate
• New image, culture
• Costs, risks may be higher
• Most common when reengineer; major

changes in operations or approach

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Different Facilities, Different Issues

• Manufacturing & back office are often cost

focused: savings, efficiency, scale economies or redundancy issues

• HQ and R&D more likely are control, culture or

effectiveness issues: recruiting, collaboration, connectivity

• Can stockpile inventory in a manufacturing
• move. How do you stockpile office services?

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Consolidating Customer Service

• Goal: lower costs, improve efficiency
• Analysis:

– Lowest operating cost area; highest one-time cost – Over five years, low one-time cost dominates; over ten years, low operating cost best – Labor capacity questions in low operating cost

• Decision: focus 10 years, chose lower long

term operating cost

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Not-for-profit HQ Merger

• Goal:

– Operational efficiency: air access; costs – Neutral site, merger of equals, build team

• Analysis:

– Higher cost in neutral, superior air access, recruiting, industry presence – Biased team member

• Decision: pick neutral

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Consider Community Incentives

• Competitive consolidation
• Incentives traditionally for increasing jobs
• Incentives for retention
• But keep incentives in their place; part of

decision, not the lead

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Final Comments

• Keep an open mind
• Plan for the future, not the past
• Compare apples to apples
• One time consolidation costs can outweigh

lower unit operating costs

– Business disruption the key risk

• Expect political issues; try to draw out
• Questions?

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Contact

Jerry Szatan Principal Szatan & Associates 1829 N. Cleveland Chicago, IL 60614 Jerry@SzatanAssociates.com Ph: 312-440-9070 Fax: 312-440-0368