Feasibility Assessment for Relocating a Food Supplement Factory

Background:

• Manufacturing plant operates one sift from a 40,000 SF area with a few buildings
• Business level strategy: High production cost and new business opportunities brought the need to look into relocation of the facility

Challenges:

• Determine if relocation can self-finance through the buy and sell process
• Understand and define 3 years demand planning of existing and future potential products
• Translate business plan into capacity in terms of equipment and people
• Understand investment required to move facility
• No key performance indicators or performance measurement tracking
• Little data on standard times for people and machinery available
• Current layout is not conducive to efficient production processes
• Due to space constraints warehouses are spread out across many different places making supply chain management complex and creating a bottleneck in quality testing of raw materials

Tools & Methodologies:

• Interviewed operational staff to understand estimated times for hands-on work and machinery and understand production lead-time
• Built capacity model to understand utilization rates for people and machinery
• Designed current and future value stream maps to identify waste and bottlenecks and streamline value flows
• Conducted financial analysis and built financial model to understand profitability of project under different staffing and demand scenarios
• Created current state and future state supply chain flow diagrams to demonstrate efficiency improvements

Outcomes/Results:

• Relocation is financially feasible and will produce operational savings
• Facility is equipped to satisfy increased demand and production lines with regards to equipment and people
• Selection of new facility will be critical to improving process efficiencies
• Relocation costs estimated at $4M-$4.2M
• Based on potential real-estate difference of selling vs.  Buying of $3.5M an investment of $0.5M-$0.7M is required
• Annual operational savings of $750K are expected as a result of the move
• ROI of 150%-$480
• NPV of $1.7M-$4M
• Current machinery capacity is less than 60%, facing few capacity constraints
• Current staff capacity is 10-60%, also facing few capacity constraints

For further information on the Theory of Constraints (TOC) - click here.