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Merger or consolidation; facility actions help it succeed

Merge or consolidate to concentrate resources for successful operation; use economies of scale to minimize cost. But don't overlook facilities and operation, where all the plans and expectations must come together or the new entity won't function.

In any economy, especially this one, consolidation or merger can make economic and strategic sense. First plan, and later integrate, equipment, processes and facilities properly because they affect not only the balance sheet but also future P&L results of the entity.

Disciplines such as legal, financial, treasury, HR and accounting always participate in valuation
or project justification steps to consolidate or merge. The plans that they make, the assumptions they build on, come together in the facility. At the time of due diligence, and again when facilities are to be physically combined, take a close look at how the final facility will operate to increase the opportunity for success.

To consolidate existing corporate operations, or merge different corporate entities, is usually quite similar from the facility standpoint. And the approach is effective not only for industry, but also in situations where the output is paper, or ideas, or customer service, or container loads. It works well in military Base Realignment and Closure. Most activities involve the same factors; work, organizations, missions, output, constraints, manning, task assignment, equipment, and progress reporting.

This summary article is primarily strategic in nature, and more specific guidance will depend on the circumstances of your merger or consolidation. When you are ready, Jackson Productivity Research Inc. will be glad to assist with the many details necessary for successful consolidation or merger both in the due diligence steps and later in implementation.

1. During due diligence and valuation

A. Set objectives for future cooperation; consider in both the merger candidate and the potential acquirer how the operations would fit together for enhanced productivity. Consider at least,
1. Work done: Output, capacity, present cost, potential improvement.
2. Facilities: Capability for the task, condition, exposures. Lease, own.
3. Productivity: What it is, how to make it better.
4. Technology: How current and how effective. New product introduction process.
5. Systems: Existence and effectiveness of manual or electronic systems.
6. Constraints: Identify and quantify them, suggest how to relieve them.
7. Priorities: Quantify the relatively few factors which cost the most and offer the biggest potential for improvement.
8. Logistics: Materials, flow. Inventories and obsolescence.
9. Organization: Relationships, improvements possible. Synergies and critical mass improvements possible with multiple organizations.
10. Vendors for major components. Strength of, dependence on, vendors.
11. Location strategy: What should be where; potential benefit of relocation.

B. Specific actions to accomplish due diligence objectives
1. Understand client strategy and objectives, and the scope of the project.
2. Visit facilities of the acquirer which are similar to those to be acquired. Understand any unique factors to look for, and possible synergies.
3. Visit the facilities to be acquired. Quantify the actual facility, equipment, and process situations.
4. Evaluate the information gathered.

5. Report physical conditions particularly as they affect the intended use of the facility and process, at the site or if another location is chosen. Determine options available and make recommendations accordingly.
a. Call out and quantify any potential "show-stoppers", situations that have the potential to adversely affect the entire merger.
b. Physical characteristics of facility and grounds, capacities and limitations; utilities and services, discharges, environmental risks from past processes, permits required for addition or modification, environmental permits required and available, fire rotection, zoning, easements, building possible on acreage. If leased, terms and dates of the contract, and sublease possibilities. Lease or sale potential of owned property.
c. Equipment and process; capacity, capability, condition, and limitations. General levels of productivity, and opportunities for improvement in the categories of people, inventory, and equipment.
d. Technical characteristics of the acquisition which affect ability to be relocated, such as dependence on local technology and s upport, complexity, similarity to the acquirer, level of documentation available.
e. Operating cost characteristics of the acquisition which are location sensitive, which would change the cost structure in another community. Operating cost differentials if it were to be
1) Kept at the existing location, 2) Integrated into an existing client location, 3) Placed at a new location chosen for cost effectiveness.

2. Post acquisition activity
Facility planning and industrial engineering actions can be very useful in the transition after an investment, especially to reach the expected levels of growth, modernization, new product introduction, technology, integration, or interaction for which the investment is targeted. End results will probably involve action throughout all facilities and operations, to:

A. Maximize
1. Operating utilization and throughput at facilities. Return on assets.
2. Product consolidation and integration, product mix.
3. Capacity for existing and new products.
4. Proximity to markets. Customer service.
5. Access to technology, people, utilities.
6. Company image and quality of life objectives.

B. Minimize
1. Location sensitive operating costs such as labor at all levels of the organization chart, taxes, occupancy, utilities, waste disposal.
2. Distribution and incoming freight costs.
3. Constraints, cycle times, inventory.
4. Facility asset value and operating cost.
5. Antiquated facilities which impede operations.

C. Actions to achieve these objectives will have unique cost, personnel and logistics ramifications.
1. Improve operating utilization to optimize throughput and return on assets in existing locations. In each facility, maximize capacity, productivity, efficiency, output. Minimize constraints, cycle times, inventory, costs. Justify new technology.

2. Revise operating mechanisms to take advantage of the other new corporate locations, and the complementary relationships and synergies possible from combination; equipment dedication, seasonality, capacity, longer runs; management, scheduling, purchasing, overhead leverage, distribution patterns and methods. Add new products, or adjust to a more profitable product mix.

3. Improve operating utilization by combining or relocating processes within or between facilities. Consolidate equipment an antiquated facilities; access technology, people, utilities. Integrate production into the low cost configuration. Extricate useful equipment or facilities, and mothball, lease or liquidate the excess.

Thanks for the time, I hope the article was useful. JPR welcomes the opportunity to discuss your particular application.

Jack Greene, Jackson Productivity Research Inc.

What Next?

You have searched the web to understand how the principals of facility merger and consolidation can benefit your organization, but maybe don't know quite how to proceed. I'll be glad to share what I know about the subject, and will welcome your call or email. Tell me as much as you'd like, confidentially, about your organization's situation and objectives, timetable and budget, and I'll describe some practical actions to accomplish your scope. You will have a better understanding of the options.


There's no cost or obligation to contact Jack Greene at 843-422-1298