Facility Consolidation: What You Need To Know Before You Get Started
If you're even considering consolidating your company's distribution or manufacturing operation, you know that it's no small under-taking. Consolidation affects everyone - customers, employees, and supply chain partners are impacted by a decision to combine geographic locations or even different divisions of the same operation.
Consolidating different divisions of the same company means potentially bringing a product mix of unique lines under one roof. For example, if you're a company that makes hospital supplies, you may have one division that makes your medical instruments and another that makes disposable products such as gowns and booties. For this company, con-solidating the two divisions into one facility could mean the opportunity to achieve significant cost savings by taking advantage of one consolidated shipment to its customers rather than multiple shipments. The customer would benefit from fewer shipments as well as the reduced effort needed to place orders. Consolidating divisions into one facility or distribution center (DC) would also allow consolidation of functions such as order management, purchasing and inventory, leading to greater operational efficiencies.
Consolidating the same operation or division for geographic reasons adds capacity but not necessarily a different product mix. The supply chain benefits from this type of consolidation are achieved through costs savings derived from increased volumes. These benefits include reduced space by increasing storage density, reduced safety stock inventory by consolidating stock, more efficient methods and equipment to manage the increased volume, as well as reduced overhead and redundant management costs. When consolidating facilities geographically, it is necessary to ensure that the cost efficiencies gained through operational consolidation will not decrease your current service levels to customers or increase transportation costs to maintain those service levels more than the savings generate.
Regardless of why you are considering facility consolidation, the drivers behind consolidation are generally simple-to reduce costs and/or improve customer service levels. Period. But despite the compelling big picture argument that can be made in favor of consolidation, there are significant issues that you will need to consider before you decide it's the right thing to do.