When plants are under capacitized, footprint consolidation is a necessary strategic process for organizations to remain competitive in an ever-changing and increasingly competitive market. This strategy focuses on optimizing an organization’s facilities, resources, and production processes to reduce costs and enhance efficiency. Within manufacturing, developing contingency plans for footprint consolidation is crucial to ensuring long-term success and resilience by responding to changing market conditions.
Learning from 2008
The 2008 financial crisis was a global economic catastrophe triggered by a combination of factors, including unsustainable mortgage lending, the collapse of the housing market, and widespread financial deregulation. The crisis led to a severe economic downturn, resulting in massive job losses and financial hardship for individuals and businesses alike.
As a business highly reliant on available financing for customers, the automotive industry faced the brutal consequences of the crisis. The resulting declining consumer demand for automobiles, coupled with financial challenges faced by major manufacturers, led to a restructuring of the industry. Many automotive companies were forced to seek government assistance or declare bankruptcy. The crisis highlighted the need for businesses to be proactive in identifying potential risks and developing effective contingency plans to mitigate them.
Benefits of Footprint Consolidation in Automotive Manufacturing
The demand for vehicles has been very strong over recent years, but an economic downturn is inevitable. No one really knows when it will happen, or how fast it will come when it does. But those who plan for it will be the ones able to act quickly when the challenge arises.
There are several benefits to proactive planning for footprint consolidation. Although “no plan survives contact with the enemy,” a good plan will provide a framework for rapid cost reduction and improved efficiency, better utilizing the available resources.
A leaner and more efficient manufacturing operation allows automotive manufacturers to efficiently adapt to changing market conditions and customer preferences. With optimized resource usage, companies can better focus on innovation, product quality, and meeting customer needs. This ultimately strengthens their competitive position in the industry.
Developing Contingency Plans for Footprint Consolidation
In order to stay ahead of the curve and respond proactively instead of reactively to threats, manufacturers must have a suite of contingency plans. Manufacturers must begin by analyzing current risks, their current manufacturing footprint, and establishing goals and plans for consolidation.
The first step to developing a contingency plan for footprint consolidation is to identify the potential risks and challenges the future may present. These may be things like economic downturns, technological disruptions, natural disasters, and supply chain disruptions. This step is crucial to understanding the potential triggers for footprint consolidation and, by understanding the trigger, a contingency plan can be made.
The next step is to analyze existing facilities and operations, including the locations of manufacturing plants, assembly lines, and distribution centers. This assessment should identify potential redundancies, inefficiencies, and areas for improvement. It should also factor in which products are most likely to remain in demand in a downside scenario. With an understanding of the current manufacturing footprint and potential risks, manufacturers can set specific goals and objectives for footprint consolidation. These should be aligned with the overall corporate strategy and focused on improving efficiency, reducing costs, and enhancing the company’s competitive advantage.
Any contingency plan should outline the steps necessary to achieve the consolidation goals. This includes identifying sites for consolidation, evaluating resources and capacity requirements, and establishing a timeline for implementation.
One of the best ways to develop contingency plans for footprint consolidation is through scenario analysis. The correct contingency plan for an economic downturn will likely not look like the same contingency plan for a collapse of lower-tier suppliers. This requires a case-by-case scenario analysis and rank-ordering of the most likely and most detrimental scenarios. Some threats may require manufacturing expansion, while others may require near-shoring or reshoring.
Implementing the Consolidation Plan
Any consolidation plan must be developed with criteria in mind for what will trigger the implementation of the contingency plan. Otherwise, companies risk overreacting to minor market movements, which could be worse than not having a contingency plan at all. Before the plan is ever implemented, it must be communicated to the stakeholders and approved by the company’s leadership team. Open communication with stakeholders, including employees, suppliers, and customers, is essential to gain buy-in and support for the consolidation process. Transparent communication helps alleviate concerns and ensures everyone understands the reasoning behind the plan and the expected benefits.
Employees must also have a basic understanding of the consolidation plan. Footprint consolidation can be a challenging process that often involves workforce adjustments, such as relocations, layoffs, or reskilling. Providing resources and support to employees can help them understand the role they will play in any consolidation and what their options are in the event that a consolidation becomes necessary. Providing resources and support to affected employees is crucial for maintaining morale and ensuring a smooth transition. Transparent communication, employee training, and engagement programs can help build trust and foster cooperation during the process.
After implementing the consolidation plan, the leadership must track progress against the plan’s objectives and milestones to determine if any modifications are necessary. By monitoring progress, automotive manufacturers can identify potential issues, make data-driven decisions, and adjust the plan as needed to maintain momentum and stay on track.
Contingency plans for footprint consolidation are a necessary part of any manufacturing company’s future, especially after the 2008 financial crisis and the pandemic. While it’s good practice for companies to engage in footprint consolidation planning, it’s also worthwhile to engage in constant kaizen cycles to improve operational efficiency. There is a balance to be struck between optimizing for efficiency and leaving enough meat on the bones during times of scarcity. To help create an environment of optimized operational efficiency, our team of specialized operational consultants are trained to act as a support structure and optimize logistics operations from day one. Our advisors are former management at many suppliers and OEMs and are experts in production, operational efficiency, and crisis management. Contact us today to schedule a discovery call, or see our case studies for more information.