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

Introduction • Why consolidate facilities? • What should you consider when evaluating the feasibility of facility consolidation: benefits, costs, risks? • Share and discuss experiences April 24, 2017 Szatan & Associates 2

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 April 24, 2017 Szatan & Associates 3

Your Backgrounds • Involved with a consolidation? • Circumstances and goals?? • Initial and subsequent issues? What did you learn? • Your goal for session? April 24, 2017 Szatan & Associates 4

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. April 24, 2017 Szatan & Associates 5

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 April 24, 2017 Szatan & Associates 6

Why Consolidate? • Reduce capacity • Lower operating costs • Increase effectiveness, efficiency • Achieve scale economies • Eliminate duplication after merger, acquisition April 24, 2017 Szatan & Associates 7

Why Consolidate (cont.)? • Better labor availability, quality, recruiting • Change culture, more unified, teamwork • Better internal communication • Better training, more consistent procedure April 24, 2017 Szatan & Associates 8

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 April 24, 2017 Szatan & Associates 9

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 April 24, 2017 Szatan & Associates 10

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? April 24, 2017 Szatan & Associates 11

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 April 24, 2017 Szatan & Associates 12

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? April 24, 2017 Szatan & Associates 13

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 April 24, 2017 Szatan & Associates 14

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 April 24, 2017 Szatan & Associates 15

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 April 24, 2017 Szatan & Associates 16

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? April 24, 2017 Szatan & Associates 17

Contact Jerry Szatan Principal Szatan & Associates 1829 N. Cleveland Chicago, IL 60614 Jerry@SzatanAssociates.com Ph: 312-440-9070 Fax: 312-440-0368 April 24, 2017 Szatan & Associates 18