Description

In the headlong rush to take advantage of lower costs, many companies underestimate the hidden potential of improving productivity in Western Brownfield locations and overestimate the promise of manufacturing in low-cost countries. Booz Allen Hamilton believes that even in instances where economic trends seem to support relocation, that is often only because short-term expense reduction is the sole consideration. By examining the issue in an open, broad-minded, and diligent way, companies can plan a manufacturing strategy that is both profitable and defensible. This article explains how to succeed in doing it.

 Key Thoughts

Among the range of options for creating an effective manufacturing strategy, companies can:

– Transform existing operations into best-in-class plants (Brownfield transformation);
– Outsource manufacturing segments to external partners in low-cost countries;
– Move production to low-cost countries (Greenfield relocation) and/or
– Hand over ownership to a partner abroad.

To find the best fit, a company must find answers to certain questions around the manufacturing technologies or installed processes: Are they proprietary? Are they core competencies? Are they available only in traditional markets? Are they capital-intensive than labor-intensive? Are they dependent on shop-floor know-how?

Companies also should address some structural queries, such as: Must suppliers and distribution be close to the customer base? Is productivity or effectiveness influenced by plant scale and labor costs? What is the customer footprint and need for stable product flow?

When these questions are taken into account, many companies take a step-wise approach to relocation and realize significant benefits from doing so. As an example, we estimate that if all of the separate financial, labor, infrastructure, and technical challenges involved had been taken into account, about a third of all plant relocations from France, Germany, and the Netherlands to Eastern Europe would not have happened.

 Conclusion

Relocation or transformation should not be viewed as a dilemma; instead, it is an opportunity for companies to revisit their manufacturing strategy and create an outcome that generates the most lucrative returns and the most positive stakeholder response.