Success factors for footprint optimization
How to optimize a company's footprint in the automotive industry
The decision to change a company's footprint affects a wide range of areas within the business for many years to come. The financial investment involved is often substantial. Add to this the need to weigh up the conflicting priorities of different voices within the company, the requirements of customers, and the uncertainty of external factors such as government subsidies, local taxes and labor costs at different sites, and the difficulty of reaching a decision that you can be confident of is self-evident.
Automotive companies decide to optimize their footprint for a myriad of reasons. You may have reached the limits of your production capacity and be looking for a new production site, or need to close a plant due to overcapacity. You may be keen to expand into new markets and develop new products, or to focus on products with the highest profit margins. New trade barriers may have appeared, old barriers may have fallen away.
Whatever the reason, the harsh reality is that many footprint optimization projects fail to deliver the desired results. The complexity of the decision stems from the large number of uncertain variables that top managers must weigh up. Accessing all the relevant data, gathering input and putting all the different factors and variables – appropriately weighted – into a single calculation is a daunting task even for highly experienced strategists. To stay on track, decision-makers need to keep several important factors at the front of their minds.
Five success factors: STAMP
Our experience supporting companies through this difficult process indicates that there are five key things that top managers should remember when optimizing their footprint or rethinking product allocation across plants. These five success factors are Strategy, Team, Analytics, Method and Preparation. Other factors also exist but we consider these five the most important for giving your footprint optimization project the "stamp of success".
What is your strategic goal in optimizing your footprint? To achieve proximity to future markets? To ensure high-quality production? To be close to suppliers? To secure cost advantages? Or maybe to take advantage of local talent? Clearly defining and aligning your business strategy, production strategy and ultimately your footprint strategy is critical to the success of the overall project.
The footprint strategy cannot be decided by individual stakeholders. Developing a target footprint requires a top-down approach, led by an experienced team with sufficient seniority. Clear roles and responsibilities are vital, both at top management and project team level. At the same time, you need to involve relevant departments in the research and the evaluation process. For example, taking someone from Legal or Logistics along on a visit to the proposed site for a new production plant can provide invaluable insights.
One of the most challenging aspects of optimization projects is assembling and evaluating the necessary data. Transparency about the current footprint and other internal company data is essential, yet often surprisingly difficult to achieve. Securing reliable information about proposed new sites and the conditions affecting them often requires research and expertise that goes beyond the company's regular capabilities. The vast amount of detail needed and the number of uncertain factors that must be taken into consideration call for outstanding skills in analyzing and interpreting data.
At Roland Berger we employ a sophisticated system of data analytics. We set up a basic model as a framework, input the scores for different (actual or potential) production sites based on a thorough analysis, then translate the information into an overall picture. To achieve confidence about the target picture, it is also necessary to vary parameters and check their validity. This procedure, combined with our footprint tool, allows us to develop several different scenarios, verify the data and carry out sensitivity analyses in real time.
Successful footprint optimization requires a clearly defined approach: Analyze the current situation and gather data (customer data, market data, logistics data, and so on); evaluate opportunities for optimization against predefined criteria; develop a clear target footprint and check the accuracy and fit with your strategy via a sensitivity analysis; and finally, prepare for implementation, including calculating the financial impact with the help of a business plan and developing actions. This four-step method ensures that you take all relevant data into consideration.
You need to prepare properly for your final decision about a new footprint. This preparation should include physical visits to proposed plant sites to check that local data is correct and that the required infrastructure – access roads, power supply, and the like – actually exists or can be built. Wherever possible you should consult experts working in the country or region in question, such as local tax advisors.
Arriving at a solid footprint optimization decision is by no means a walk in the park. The complexity is driven by many factors: the availability and quality of data, weighting of multiple factors, uncertain external factors, competing internal targets and the difficulty of simultaneously assessing different strategic options and their complex implications. Often, the process is exacerbated by unclear responsibilities within the project team or a lack of involvement from top management. Keeping STAMP in mind and, where necessary, calling on experienced external support in the challenging area of data analytics can help you rise to the challenge.
Please do not hesitate to contact our experts for further information on this topic or to discuss potential solutions for your company's footprint.