Today many factories in China that are too close to city centers are being asked to relocate further out as environmental laws, amongst other things, come increasingly into force.
In this post I will categorize factory relocations into the 3 most common scenarios and give more details on each...
Factory Relocation In China Is Becoming More Common
Last week I had an interesting discussion with the representative of a Guangdong-based construction firm. He said there was a very large number of factories built in the 2000's, especially in Shenzhen, Dongguan, and Guangzhou.
And these days he is seeing a ‘second wave,’ as factories located too close to city centers are asked to relocate.
It corresponds to what we have seen over the past few years. I thought about it and I’ll try to categorize factory relocations in 3 very different scenarios, including:
- Why this relocation scenario might need to happen
- What to do if you find yourself in this scenario
- Key pitfalls to avoid
Relocation Scenario 1: You are forced to move away
This seems to be the most common. A factory is in an area for which the local government plans new developments. They’d rather have a 35-storey office building than a 6-storey factory building.
Typically, there is now a metro station close by, the neighborhood has been progressively morphing into a residential and/or office area, and the different administrations have passed the message: “sooner or later you’ll have to move”. Then, one day, the announcement is made, and the tenants are given a deadline.
- Find another factory building 50-150 km away.
- Buy a plot of land and build a new facility.
For all the talk about inland provinces, we see that most companies choose to relocate to a neighboring city (a 1 hour ride away), rather than in another province (a 2- or 3-hour train ride away). And that makes sense. The suppliers are close by. The key staff live close by. Don’t lose them.
Some companies do a “copy & paste” factory relocation and it’s usually a mistake. This is the time to rethink the overall layout as well as the integration of processes! Even if you have been working for years on operational excellence initiatives, the freedom to choose the layout that makes sense for your activity is a huge opportunity.
Map the current material flows and operators’ movements. Ask your staff what slows them down or makes their job harder. There are always opportunities for improvement.
Relocation Scenario 2: Your business is changing and needs a new facility
This is usually a positive situation. Your company has grown considerably and needs more space.
What to do? Obviously you won’t be welcome in the areas that are pushing factories away, so you’ll need to look a bit further away. If you are in Shenzhen it might mean in Huizhou (or in Shenzhen, but very close to Huizhou, to minimize paperwork). If you are in Guangzhou it might mean Zhaoqing, Qingyuan, or Heyuan. If you are in Shanghai it might mean Jiaxing or Nantong.
So, in terms of “what to do” this is quite similar to scenario 1, but there is usually less time to plan ahead, and a whole construction project is less likely.
We see two common pitfalls here:
- Do you really need to move away? In many cases we have freed up more than 40% of manufacturing and warehouse space. A combination of 5S, point-of-use inventory, more compact and better integrated processing & assembly areas, and better inventory control, usually frees up a lot of space very quickly. (By the way, it also raises productivity and improves quality…)
- Are you sure you need 5 times, or 10 times, the amount of space? Do you need that huge office? Will all the extra space be filled quickly by a lack of discipline (should you cordon some rooms/floors off for now)?
Relocation Scenario 3: Your existing operations and culture need a shakeup
We see this sometimes. The culture is toxic. The management team is totally dysfunctional. The building(s) are not adapted, and the layout is terrible. So many bad habits were taken, at all levels, that it would be easier to start from a blank page.
This is obviously not an easy decision. It is “back to square 0” in some respects. Yet we have come to that conclusion a few times.
The key question, though, is: ‘What will we do this time to make it a success, if we messed up so badly before?’
If you bring in the same managers, within the same management system (or lack thereof), chances are that things will turn bad again.
A very strong leader can shake this up and get things started on the right path. Deep involvement by a consulting firm for 6 months is also an option and we can testify that it works. In any case, don’t try this under the guidance of your existing team.
Have your say on relocating and new factory setup...
Are you considering a factory relocation project? What situation are you in, and what pitfalls can you foresee? Have you performed a new factory setup project in China? What experiences can you share with your community that may assist them in their own?
Write a comment below and we’ll make sure to respond.