Risks and Costs of a Move

While we have so far only compared the “expansion stage” with the status quo, we must also consider the costs and risks for the move.

On the surface, we often consider the pure investment in a new commercial property with infrastructure (supply of electrics, water, gas, etc., hall cranes) and the dismantling, transport and re-installation and commissioning of the machines (foundations, connections). You may also consider temporary double occupancy costs. But besides these obvious costs, you should consider other aspects.

During the move, the machines are not available for production output. You will have to create a buffer stock in paid extra work before the move, which you will have to pre-finance. If necessary, pre-production must be temporarily stored externally for a fee. Don’t assume that your machines will immediately return to their accustomed product quality at full capacity once they are installed at the new location. You will not only have to reckon with machine-related start-up difficulties, but also with process-related frictions that will lead to reduced quantities and additional quality costs (scrap, reworking and complaints). You will have to put additional effort into satisfying your customers.

Most importantly, you will be giving up established, functioning processes at the site you are closing. The value of functioning processes cannot be overstated. Many important details are not even documented in companies and function implicitly. Developing the processes at a new site first so that everything works at least as well as it did before implementing a site consolidation is a big and costly task.

If you close a previous site, you must also expect to incur redundancy costs. You must also anticipate having to locate, recruit and train staff at your new location. These costs should also be factored into your considerations.

Finally, a site merger will strongly bind your management’s attention and keep them away from day-to-day business and strategic considerations. Be careful not to lose focus on the business during such a project.


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