Identifying the risks and inefficiencies

Identifying the risks and inefficiencies in the network such as imports from Europe and North-America.

Assignment

Our client, a leading manufacturer of industrial inks, has an established manufacturing footprint around the globe. The footprint consists of a mix of consolidated larger “super sites” and smaller sites closer to the customer base. The company acknowledged the need to optimize its manufacturing footprint in Asia. Key drivers for this were the risks identified in the network (single source / focused plants for certain important products) and inefficiencies in the network such as imports from Europe and North-America with long lead times and high costs.

Our client assigned BCI to work closely together with the client’s team in Asia to optimize the manufacturing footprint, taking into account business projections, expected product portfolio developments and sourcing base developments.

Project summary

The client company is a leading manufacturer of industrial inks. The company has a global manufacturing footprint, organized region by region. The current footprint exists of their own longstanding legacy sites, surrounded by multiple production sites that were acquired over the years.

The company is facing challenges in different areas: geopolitical uncertainties, competitive pressures (e.g. through local low cost competitors) and product portfolio shifts: certain product groups are growing fast while others show declining volumes. 

The main trigger for this project was to de-risk the Asia manufacturing footprint and to reduce the complexity of the flows within the network. A key starting point for the optimization was that service levels to the customer base must stay at least at the current level.

Method

In our project with this client we applied our proven approach to manufacturing footprint optimization:

  • Detailed quantitative modelling: volumes, operating costs and duties, capacities, capex and transition costs
  • Detailed qualitative analysis with a focus on elements such as location quality and risks, labor availability, supplier availability

The project was conducted in a step-by-step approach:

  1. AS-IS analysis; detailed quantitative data collection and analysis as well as strategic input gathering through management interviews and workshops. A detailed mapping of the current footprint was the result of this first step
  2. Scenario development; based on peer company benchmarking, our global manufacturing footprint experience and the client team’s own experience and ideas a set of 5 base scenarios was defined and detailed. The scenarios as defined ranged from extreme consolidation in Asia (moving towards one super plant with a few small sites as satellites around it) to “just” an optimized AS-IS (optimized allocation of product groups / markets to each manufacturing site in Asia)
  3. Scenario analysis; a very detailed and flexible footprint (software) model was developed, allowing for fast scenario analysis and sensitivity testing. The model allowed for both pan-Asia holistic scenario assessments and for focused footprint analyses, for example shifting just two product groups from one site to another. Besides the quantitative modelling, in this step also the qualitative assessment per scenario was conducted, including risk analyses, labor market feasibility, supplier base availability and regulatory impacts
  4. Roadmap development; based on the outcomes of step 3 the preferred scenario was selected and a roadmap was built together with the client team: when to make which shift in the footprint, when to do what capital investment and insights into how the landed cost per product group will evolve over time given these optimizations

Results

Based on the result of the study the client’s executive management decided to move into a gradual path of optimization. First removing the complexity and inconsistencies in the current footprint by optimizing the allocation of product groups and markets to each manufacturing site. This phase will take 2 years to be fully accomplished. The next phase will include investments into new capacity at new locations in the region.

The company chose this strategy because it allows for growing the business further in some of the main markets in Asia. Increased market volumes will support the business case for investments into new manufacturing plants as in some countries the economies of scale are not yet there to do this economically.

By reallocating products and capacities within the current footprint, the company is able to mitigate risks that were a key driver for starting this project. For every product group there will now be at least two manufacturing locations.

“Apart from the insights, the final results of the project gave us, by going through this journey under BCI’s leadership we also learned a lot about how we actually run our manufacturing footprint in the different parts of Asia. Now we are much better equipped to manage our footprint as a real Asia footprint, instead of a mostly country-based dispersed system”