Evaluating Plant Expansion Needs

by Scott Walton, Harbour Results, Inc.

Now that production levels have increased across several major markets affecting the plastics injection molding industry, many processors are wondering if their current assets are enough to handle the growth. Whether acquiring new equipment or assessing facility space for reconfiguration or expansion, decisions should be supported by solid data and analytics.

Match supply to demand through forecasting

The first step in any expansion/acquisition assessment is to match the demand to the supply by accurately forecasting market need. That’s the first step any time a company is looking at expansion, because if that company can’t forecast or understand its market data, the company can’t expand with any degree of accuracy. Three data points can provide a solid assessment.

Market forecasts

The forecast information generally isn’t difficult to find. In automotive, for example, there are companies that provide forecasting data for five years out or more by vehicle, region, company model, model refresh and model full changeover. Even if a plastics molder is not in the automotive market, that market’s forecast information is a strong leading indicator of what’s going to happen in the custom injection molding business. If automotive is busy, overall capacity will be tied up as automotive still is one of the largest consumers of plastics of any industry. If the automotive industry is busy, even if the appliance market is flat or slightly down, appliance molders still will be busy because automotive is tying up injection molding capacity – and, there’s only so much to go around. In addition, market forecast information is available in several other industries, including aerospace and packaging.

Economic influences

There also should be external avenues of research, including data readily available via the internet, for economic data and trends, both domestically and internationally. What’s happening in China and Mexico? Who’s investing in those countries? What’s happening within Europe, in general? What’s happening in the old Eastern Bloc countries? What’s happening in Greece? All these things affect currency.

Customer surveys

A phone call – or better yet, an in-person visit – often can result in valuable information from current customers. Has their quoting activity increased? Are competitors entering the market who could affect current production? What are the customers hearing about future usage from end users or end markets?

Market forecasts, economic conditions and customer input provide the data needed for an assessment. Then, processors need to rely on their history and experience over the last several years, applying that data to make a personal estimate, based on what the company traditionally has done to support the customers or the industry. If market analysis shows the aerospace market is kicking up by a certain percentage, processors should be able to link the market data to specific demand by customer, product and region within the aerospace industry. Then, the company should be able to forecast or plan against the demand in that arena.

Review utilization trends

If the market points to a need for increased production outputs, don’t start building quite yet. A highly utilized plant does not necessarily equal a highly profitable plant. In other words, using all available resources isn’t the same as using them efficiently.

When looking at utilization, start by reviewing it on a theoretical basis, not an actual basis. How many hours theoretically are available per machine, and how many hours at standard cycle and standard scrap rate actually are in the capacity plan? Those are known factors. Then, layer in downtime and additional scrap – the “actual basis” factors that are affecting utilization efficiency.

As an example, let’s say the standard scrap rate is two percent, but the facility is running at four percent across the board. How many hours could be freed up on every single press in the facility if the scrap rate could be brought down? As another illustration, let’s assume the average part-to-part changeover is 20 minutes. However, it actually takes eight hours because operators are waiting for labor, material or a sign off from the Quality department. All those factors go into calculating true utilization when utilization is viewed as a percentage of scheduled hours.

The way to find efficiency is to perform a process quantity analysis. Use the data to clearly understand the demand characteristics, so there can be an accurate understanding of what has to be done to supply that demand. Usually, the emotional argument is “we’re really busy, so I think we need more people, more machines, more space, etc.,” but many people aren’t doing the math. Understand the capacity calculations and the demand calculations. Make sure to find all the holes in the bucket before investing in new assets.

Reassess the current facility

Once a company has sealed the cracks in its production inefficiencies, another assessment is necessary before expanding the physical production environment, whether by adding on to a current facility or finding/building a new manufacturing space. Bricks and mortar is a very difficult investment to justify unless a company is cash-rich. If the company has a good forecast and is highly utilized, if waste is under control, if setups and inventory are under control and if the plant is running at 75 percent utilization on a seven-day basis, then a company can start thinking about adding space. Until then, there are a few places to find available square footage.

The first place to look is in existing inventory. How many skids and cubes are occupying valuable space within the facility? Are there one or two primary parts with a consistent forecast that can be moved offsite at a lower monthly cost? It may be more cost effective to store pallets and skids at another location before spending money on bricks and mortar.

The smartest person in the building needs to be the scheduling and inventory manager. Poor scheduling and inventory management account for 95 percent of the inefficiencies in every plant we’ve toured. Holding excess inventory not only cuts into available space for production activities, but also masks inefficiencies in scheduling, excess material and setup.

It’s also critical to use the current square footage efficiently. Companies sometimes decide to add on to their facilities in order to add machines, when a simple change in layout could accomplish the same thing without a building expansion. Don’t position machines on the production floor in a symmetrical fashion. Symmetry looks great on paper, but it’s not efficient. Instead, turn every other machine 180 degrees so the backs of the machines face each other. That creates additional room in the front where the operator has to work and less room in the back where the maintenance people need to be less frequently.

In general, don’t leave too much work space around machines. The general rule is the more work space available, the less efficient the company is and the easier it is to bring clutter into the process. When there is too much space in a production facility, employees walk around more than they actually work. Now, if the company has plenty of available space and isn’t staring at a potential expansion, the “open air” feeling created by high ceilings and additional space on the production floor can create a pleasant work environment. However, I still would recommend optimizing the work station so one person can work between three or four machines efficiently. A process can’t be leaned out if there’s too much space.

When does facility expansion make sense?

There are times when building a new facility from the ground up is the best option or when a second building is the right choice, particularly if the new business model is distinctly different than the previous business model. Some questions to ask include the following:

  • Is the new business different or the same as current business? If the new business driving the need for expansion is more of the same business already secured by the company, it’s almost always better to increase the footprint of a current facility, rather than duplicating resources across two facilities.
  • Is the age of the current building a factor? Sometimes, it’s easier and more cost effective to start in a new building with the right process cooling system, HVAC, quick disconnect power, control systems, etc. rather than trying to retrofit a current facility.
  • Is the current facility landlocked?
  • If the current facility is leased, can the company get out of the lease in a timely enough fashion to get into another one?

As a general guideline, if a company is running on a five-day basis with more than 85 percent true utilization after cleaning up waste, it makes sense to look at adding another press, another shift or overtime flex. If a company is at 75 percent true utilization on a seven-day basis, expansion is a viable option. But, before investing in assets – whether equipment or bricks and mortar – be sure to have an accurate understanding of both market and economic factors, factor in true utilization numbers and assess the physical environment within the current facility. Too many companies are making expensive decisions based on gut feelings, not facts.

Scott Walton is chief operating officer of Harbour Results, Inc. Combining operational and financial advisory expertise with industry analysis and thought leadership, Harbour Results delivers results that impact the bottom line. The company specializes in manufacturing, production operations and asset-intensive industries, as well as a number of manufacturing processes, including stamping, tooling, precision machining and plastics. For more information, visit www.harbourresults.com.