Large OEMs have to do it, as do medium-sized companies whose plants in one region are underutilized while customers in another market cannot be supplied quickly enough. Whether large or small, virtually all companies have to continuously adapt their production capacities to changing requirements. In a world where what seemed like an ironclad rule yesterday may no longer apply tomorrow, this is no easy task. In their article, enomyc experts Max Stehr and Christian Zeller explain what companies should pay attention to and why involving an experienced partner at an early stage can avoid a lot of unrest, friction losses, and often also costs.
Increasingly volatile demand, supply chain risks, rising competitive pressure, and, last but not least, geopolitical trade barriers are driving the need for more flexible capacity models. In many industries, the utilization of individual plants now fluctuates by 20 to 30 percentage points within a year—a figure that was significantly lower ten years ago. More and more medium-sized companies are therefore faced with the challenge of adapting their production capacities as flexibly as possible – for example, because capacities purchased years ago were not systematically integrated and have since been languishing with low utilization and productivity. Or because – as was recently the case with a turbocharger manufacturer we advised – high factor costs and volatile political conditions tipped the scales in favor of relocating to other sites.
What some companies could still afford in good times is now quickly becoming the beginning of the end. That is why small and medium-sized enterprises are also faced with the question of how to strategically plan and manage their capacities in order to be able to react quickly to changing conditions on the one hand and develop a certain resilience to external fluctuations on the other. The rule of thumb is: the more complex the footprint, the more difficult it is to manage – and the more challenging it is to make the necessary adjustments. As soon as several production sites, possibly in different countries, are involved, the complexity of management increases exponentially due to factors such as different labor costs, logistical aspects, and customs barriers, making adjustments more difficult to calculate.
The need for change often remains unrecognized for a long time
What makes this particularly tricky is that the necessary and often overdue need for adjustment is frequently not obvious. For example, it can only be gleaned from the annual financial statements at the highest level. Relevant figures from controlling are often missing or are not sufficiently reliable to make a sound assessment of performance at the plant level. While interdisciplinary teams in large corporations work on defining productivity indicators, the realization of poor performance in medium-sized companies often stems more from gut feeling and the experience of seasoned employees.
When assessing the industrial maturity and potential of a location, many medium-sized companies find it difficult to rely solely on their own resources. The assessment requires a 360-degree view. It starts with the dimensions of the production system (e.g., employees, technical processes, and quality/standardization), but also covers aspects such as the site's expansion reserves, the condition of existing assets, and logistical integration into the existing or expected demand structure. Experts who are familiar with the industry are familiar with the relevant key figures and know the thresholds and comparative values that are relevant in the context of internal benchmarking.
When planning a relocation project, one question is particularly crucial: How urgent is the need for action? If the company is in need of restructuring, capacity adjustments cannot be postponed any longer. If, on the other hand, the key figures are still satisfactory, a new production (location) strategy can be developed and implemented with a little more time. However, our many years of experience from numerous relocation projects show that, especially in emergencies when time is short and pressure is high, such projects rarely achieve their goals without expert support. The worst case scenario: employees have already been laid off, customers have been informed, but the relocation is not progressing as planned and is affecting delivery capabilities. The associated damage to reputation is then only one of many problems.
When searching for a medium to long-term viable solution for a new production footprint, companies should view the market and customers from a strategic perspective. What is the specific benefit or added value of the products? Does the company have innovations for which a higher price could be charged, or is it a more or less interchangeable supplier that can only maintain its market share thanks to particularly competitive prices? In the latter case, urgent action is required.
Experienced, structured, focused: External consulting increases the probability of success
One possible—and currently probably the most relevant—approach to capacity adjustment is production relocation. Just like a partial plant closure or other adjustment options, it must be calculated in detail as a business case. Here, too, mistakes are often made – for example, because the comparative calculation between the transferring and receiving plants fails to take into account that many costs are also incurred if relocation does not take place, such as investments in production facilities or machinery.
Here, too, it is clear that without comprehensive industry and practical relocation experience, simulations of relocation scenarios often do not have sufficient substance for fundamental decisions. This is not only because existing employees lack the relevant expertise. The biggest problem is that relocations are not part of their everyday work – worse still, the relocation has to be managed in addition to their day-to-day business. And even for this alone, there is often hardly enough personnel capacity.
There are therefore many good reasons to seek expert support when planning and implementing a complex relocation project. Unlike company employees, consultants can devote their entire capacity and expertise to the relocation. This also includes a well-thought-out, structured approach. External experts are free from the demands of day-to-day business and know the market and the competitive environment. They can independently analyze the status quo of the company on the basis of reliable data and make suggestions that have proven themselves in many other cases. And thanks to their experience, they are able to anticipate special features and pitfalls at an early stage and skillfully navigate around them.
Another advantage of external support is that a suitably qualified consultant can also draw up the business plan on the basis of which banks and other financiers provide the necessary funds for an upcoming relocation – because without this, it is usually not possible for small and medium-sized enterprises.
After the adjustment is before the adjustment
Even those who do everything right – ideally with external help – should not expect quick success in relocation projects. Savings are not a sure thing, but always hard-earned. Amortization periods of two to five years are a realistic timeframe in practice for well-designed and professionally implemented projects.
Up-to-date and meaningful data is the basis for successfully planning and executing a project. In the long term, it is important to master the difficult balancing act between a high degree of flexibility, for example in processes and personnel, and the necessary resilience, for example in relation to supply chains. Production sites should not be forced into too tight a corset; they must be able to “breathe.” But this also means that capacity adjustment is not a one-off project, but an ongoing process.
Conclusion: Capacity adjustment in a nutshell
Even though every situation is unique, a few key lessons can be learned:
What are the most important warning signs for capacity adjustments?
- Permanent underutilization <70% or overutilization >90%.
- Unit costs >15% above the industry average.
- Delivery reliability <90%. OEE values <65%.
What are the most common mistakes in relocation projects?
- Starting on your own without a reliable business case calculation.
- Misjudgment of costs and hidden costs (e.g., misjudgment of severance payments, double costs in transition phases, start-up curves).
- Overly optimistic schedules (often +20-30% delay).
- Lack of change management/communication with employees and customers.
What is the added value of experienced consulting?
- Access to benchmark figures (e.g., industry-specific labor costs, OEE benchmarks).
- Structured scenario simulations → reduction of wrong decisions.
- Higher probability of success in financing and implementation (80% vs. 40%).
What questions do you have on this topic? Get in touch with us. We look forward to hearing from you.
