There are many ways to meaningfully expand a manufacturing business. We’ve discussed in the past how building a new plant or onshoring your supply chain can be strategic choices that offer increased control and customization. However, those methods can take months or years to accomplish. To expand more quickly, some companies choose to acquire existing manufacturing sites instead.
Companies have used acquisition as an expansion strategy for decades, but it’s become a higher priority for growing businesses in recent years. According to Deloitte, 53% of US executives planned to increase their merger and acquisition investment in 2021.
Advantages of Acquisition
First and foremost, the most obvious advantage of acquiring an existing site is that it’s already a fully functioning building. You don’t need to devote additional upfront costs into creating the plant’s framework or spend the significant time it takes to get a large manufacturing site up and running. According to an expert from JHP Pharmaceuticals, it typically takes two to three years to finish construction on a new plant. Any money or time you invest into the site after acquisition can be focused on making improvements or upgrades from the existing foundation.
Additionally, as an existing business, the site may potentially come with an existing customer base, if the previous owner manufactured similar products. Acquiring a site that’s already within your industry and market can give your business quick access to a pool of customers that you can begin working with from the start. You’ll spend less time and effort on business development than if you had to build an audience from nothing. Instead, your team can focus on how to improve profitability and improve the already established sales process.
…And the Disadvantages
Unfortunately, there are unique challenges that will accompany an existing site, as well. When you inherit the site’s infrastructure and customer base, you also inherit all the issues that led the previous company to sell. The plant may be underperforming financially or have limits on production and storage capacity. Instead of building a new facility to your exact specifications, you must learn to work with the current framework and quickly identify where investments should be made to make improvements. Though your business did purchase the physical plant, you’re really paying for the potential of what the site could soon become.
How a Virtual Model Helps from the Start
To begin improving on that potential as soon as possible, many experts recommend creating a virtual model that captures all the processes within the plant as soon as you’ve made the decision to acquire it. The practice of creating the model will create an opportunity to unlock existing data from the plant and reveal major pain points. Loading the virtual model with information will make the data accessible to many people or groups, rather than the handful of operators who remember how things were set up when the plant opened years ago.
One of the clearest benefits of a virtual model is how it combines a plant’s entire process with current orders and forecasts to sort through every possible schedule for production. If you begin using this tool as soon as possible, you can limit the amount of time wasted due to unoptimized processes. For example, a schedule based on a virtual model can decrease idle time or craft sequences in a way that minimizes time-consuming transitions between products. Virtual models can also further connect with other plant systems to increase coordination and save time when making schedule changes.
In addition to improving the schedule based on current conditions, a virtual model can also help your team understand all potential configurations of the plant. At any time, you can test the outcome of adding different investments to the site, such as additional lines to increase capacity or increased product storage. You can then compare the results of the various options and decide which investment will produce the highest financial return. For companies who acquire a site that is potentially outdated or in need of repairs, this feature can become a huge asset, as it limits risk and makes it easier to predict future production.
Several large manufacturers have successfully used our virtual modeling, planning, and scheduling tool, VirtECS®, to improve operations after acquiring a new site. When one of our specialty chemical clients purchased an existing yet unprofitable site, they immediately turned to our experts to transform their planning and scheduling processes. “Once we created a model of the plant within VirtECS®, our client’s planning and scheduling process became much more robust. Rather than using a manual process that required people to exchange calls and track down data, it became a seamless process that multiple people could access,” said Steve Harding, President of APCI. To learn more about how virtual modeling transformed this chemical manufacturing site, you can check out our recent case study.
