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Systematic Approach for Factory Relocation

With the growth of urbanization, industrialization and the more and more tight regulations for environmental protection, many Chinese development areas, and free-trade zones are changing their location policies. Companies, which were welcomed and settled down years before under than much less strict policies, now face the request for relocation of their production facilities to another location, often under huge time pressure as licenses are revoked on comparatively short notice. To use the time in the most efficient way the relocation planning shall be done in a systematic approach, which will be the content of this paper.

Future Development Planning

The starting point for the relocation planning is to analyze the “Actual Status” and define “Target Status” a future-safe production system, which enables the company to leave behind existing constraints and benefit of increased productivity, better quality, lower inventories, improved flexibility, etc. these improvements shall be done before relocating the plant.

Furthermore, we strongly recommend developing a “Strategic Future Print”. As the new facility shall be used for a long time, the requirements for the new location shall cover future demand for production, products, technologies, supply chain, workforce, etc. Only if the known improvements and future development is clearly defined, the requirements for the future location can be defined.

It is our observation that best results in shortest time are achieved with a task force. One part of this task force is internal experts from all departments, representing all hierarchical levels. The task force is then selectively completed by 3rd party experts who are familiar with topics such as governmental regulations, site selection, production system design, project management, just to name a few, for which companies usually do not have sufficient internal competence or capacity. Also, moderation of the entire process by a neutral person, who is not blinded by all the routines of the company. This helps to overcome conflicts, as the transition to the new location cannot be accomplished by meeting all requirements simultaneously at 100%, and some solutions may require a pragmatic compromise supported by the entire team. Also, the risk of the transition is controlled and related expenditures are minimized.

Relocation
Fig. 1: Future Development Plan

External and Internal Aspects

When evaluating several potential new locations external and internal aspects have to be considered.

internal-external
Fig. 2: Internal & external Aspects

External Aspects

External aspects describe the Macro Perspective and they are not directly related to the product and the production. They describe the points, which have to be considered by looking from the outside into the relocation. In most cases, the topics contain are related to the development or industrial zone and the effects the relocation will have on the company and its workforce. Those aspects are generally summarized in the six main categories based on the PESTEL analysis:

  1. Political aspects
  2. Economic aspects
  3. Social aspects
  4. Technological aspects
  5. Environmental aspects
  6. Legislative aspects

Internal Aspects

internal
Fig. 3: Internal Aspects

The Internal Aspects describe the Micro Perspective. They consider the entire value flow from the design of the product over purchasing and production to the financial closing of the sales process. Similar to the External Aspects, the Internal Aspects are separated into 6 main categories. As the basis for the systematic analysis of the Internal Aspects, a “Six-Forces Model” has been defined and proven very useful:

  1. Products
  2. Existing and new Competitors
  3. Raw Materials
  4. Suppliers
  5. Product Technology
  6. Customer

Internal Factors

Fig. 4: Internal Factors

Final selection of the location

When comparing the different External Aspects and Internal Aspects it can be seen, that some are in contradiction to each other. For example, in a perfect setting, a product would be manufactured close to the raw material supplier and close to the customer; but unfortunately, in the majority of the cases, this is impossible.

When selecting the most optimal location given the requirements identified all the different aspects have to be evaluated and compared to each other. The best way doing this is by combining the relevant aspects in categories, for example, labor, logistics, financials, quality-of-life, etc. and assign weight factors in a Weighted Decision Chart. Within each category, criteria are defined, which are also weighted. Each criterion will have a scoring between 0 and 100, which is described verbally to score for each location depending on the situation there. For example, the criterion is “Availability of skilled workers: Welding”; then the score is 100 for “oversupply of labor” 50 for “normal supply of labor”, and 0 for “undersupply of labor”. For different companies, this Weighted Decision Chart will be different, depending on the company’s vision and mission, its strategy, or its operational targets.

This example shows the categories and criteria selected and the weight factors assigned for the evaluation of locations aiming at Final Assembly. Each location is scored according to categories, criteria and weighting factors defined. This allows comparing different locations, similar to the result of an audit, and creating a “Shortlist”.

For each of the top 3 to 6 locations, a management expose is created for further discussion with the management, and for deciding which location to visit. Of course, more detailed information is made available in a structured folder, as evidence for the results presented.

Expose
Fig. 5: Exposé

Then further investigation kicks in, for example, chemical examination of the land for legacy poisoning, or more detailed negotiations with the Industry Zone. In the process towards the final decision, a SWOT analysis may be performed to further look into the facts before signing the contract for the land.

Next Steps

When the location has been selected the detailed planning of the factory relocation starts. It is utmost important to put enough competence and capacity on developing a comprehensive plan including the time schedule. This plan considers for example which of the existing production equipment will be relocated and which structural requirements have to be fulfilled at what time ensuring smooth implementation.

 

Salvatore Giammaria 

Salvatore Giammaria
Managing Director I IMIG China

For further information please contact us either by mail: marketing@imig-ag.de or by phone: +49 7152 928 460.

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