Operating At Capacity: Now What?

5/1/2006

By Melissa Morse

Manufacturing companies globally have reaped benefits from the advancement of high-tech manufacturing equipment, favorable labor markets and a growing stability in the industry and its surrounding environments. As a result of these factors, the manufacturing industry is growing at a steady pace and requires new sites to accommodate production demands.

According to several studies, manufacturing companies nationwide are working at or near capacity, and it is time for these hard-pressed facilities to explore their options. While most companies tend to want to add on to existing facilities, often that is not possible.

Manufacturers need to consider many factors that can contribute to the expansion process. These factors can include proximity to customer base, operational time frame, logistics and labor force needed. It is key for a manufacturer to carefully review all factors when it is deciding whether it should stay in its region or relocate to another area of the country or even relocate overseas.

Customer Base Considerations

More than ever, customer service is top priority for businesses. Not only do companies need to bring new customers in, they need to build and maintain the relationships with the customers they already have. Companies are not just competing with their neighbor — they are competing globally.

During the expansion process American companies analyze how to improve business, reduce overhead cost and provide better customer service. Often times, relocating to regions that are defined by its customer base is the preferred decision. 

Foreign manufacturers relocating to the United States is a rising trend. Being located in the United States assists them in capturing the American clientele. Foreign companies that establish themselves within the United States can reduce costs significantly and improve business by coming here. Moving closer to their customer base allows companies to expand and secure client relationships.

A Swiss company is about to develop its first plant in the United States. Like most companies, the owner had anticipated that when the time came for expansion that they would just add on to its existing facilities. However, the company's client base recently transitioned from Europe to the Northeastern United States. The manufacturer wanted to be closer to its customers and after reviewing logistics in product materials, labor force and available incentives; it realized that relocating to the Northeast made the most sense.

Moving to an Existing Facility

Nearly 60 percent of manufacturing companies are relocating to existing facilities. While a new customized facility allows companies to plan for immediate needs and long-term goals, the cost for new construction is substantially larger and takes a significant amount of time before production can begin. Renovating an existing building can be an optimal choice for companies that need to expand production now.

Renovation is faster than building a new facility. Once companies reach the point of requiring additional facilities, they want to do it quickly. Business demands that production be in place sooner than new construction could allow. Therefore renovation of an existing facility is a faster and easier process to increase production.

Manufacturers considering an existing facility need to be well advised in what it has to offer and how well it meets their requirements. Corporations should reach out to state agencies and economic developers that are familiar with what their regions have to offer. The more detailed information you can provide concerning space needs, proximity to logistics, transportation, utility usage and labor force needed, will allow you to find the right match more efficiently.

Can We do This better?

“Can we do this better?” is the question a manufacturer needs to ask when it has reached its capacity.

Manufacturers should address what resources are needed for operation, what the costs of these resources are and if they can be negotiated. These factors will guide the company to look at other areas of operations, such as if there is a way to reduce taxes, if there is a way to get closer to highly skilled labor, and if there are better resources available.

An examination of how business is being conducted will determine project requirements and how the company should expand its facilities. All of these factors can be compared and evaluated by using the online Site Selection Network service to review proposals from communities that can address these critical factors.

The Site Selection Network, found at www.nam.org, provides a great benefit to companies looking to expand their facilities. A manufacturer can outline its requirements in a confidential manner, at no cost to the company, where communities are eager to supply facilities and cater to the company's needs. This allows companies to shop around and gather information on the locations available to them.

Solving Capacity Problems

The Site Selection Network works as a mediator between manufacturers, state agencies and economic developers to find the best possible match. Companies can review proposals submitted from economic developers and state agencies nationwide.

The network will work with the companies to define site requirements and operational time. The same process is used in assisting manufacturers with new facilities as well as with existing facilities. Based on the criteria, manufacturers are presented with the most viable options available.

For example, utility and power companies that are part of the network can evaluate the functions of the manufacturer and recommend ways to reduce costs. They can also offer incentives to support a company's expansion process.

Tax incentives are a critical factor in the site selection process. Due to the Site Selection Network's relationship with Location Management Services, it can include the tax incentive component to all site selections. The firm is a provider of site selection, incentive negotiation and compliance management services for companies considering new facilities, expansions, consolidations, dispositions and relocations.

Companies also have the option of receiving an appraisal conducted by Location Management Services. In addition to the incentives provided by the community, the appraisal will include the financial incentive options that will provide the company with the greatest financial benefit in searching for a location.

Manufacturers considering expansion need to thoroughly examine logistics, requirements and customer base prior to deciding the expansion method. The Services such as the Site Selection Network can assist companies in determining facility needs and guide them to the best possible solution to their capacity dilemma, providing viable options with optimal incentives.

Melissa Morse is the director of Site Selection Network of the National Association of Manufacturers. She can be reached at (800) 790-4010 or at mmorse@locationmgmt.com.