By Tom Brizek
Lessons learned from serial relocating
It still might be the worst phone call I ever received. After the initial shock and denial, I feared for my family and the families of our employees. This was fall of 2008 and we had just moved into our new facility in Honey Brook, Pa., at the prodding of our biggest customer. Business was booming. Customers were responding well to our new custom fabrication services, and our new product, an orbital stretch-wrapping machine, was getting rave reviews.
Having barely settled into the bigger and better facility, I certainly wasn’t expecting our multimillion-dollar customer to call and say they’d built a new facility in Mexico and our services would no longer be needed. Thanks for taking on such a commitment to serve us, now go away.
Did we move too soon? Could we have made the tighter facility work for a little longer? Maybe we needed to go bigger in an even larger facility and ramp up business development? And what now? Downsize?
As dire as the situation truly was at the time, it is only thanks to this situation that we began to pay very careful attention to how well we use our facility, a key step in determining whether we would stay put or endure yet another move. The more closely we examined our process and envisioned the ideal facility, the more we realized how significantly the facility either supports the overall operation and contributes to profitability or detracts from it and drains profitability. We weren’t being as efficient with our space as we could have been.
To generate positive cash flow, we quickly consolidated our operation and created enough square footage to sublet to another company. We explored lean manufacturing principles and installed more racking to maximize use of vertical space. It soon became clear that we didn’t have to move again, at least not yet.
I reveal this rough road in our history because it marked the turning point in our business and in how we thought about when to expand or relocate. Prior to that experience, available floor space, current sales, and prospects for sales growth were key factors driving the decision to move. But now that we’re in the midst of our fourth move to a new facility in a span of nine years, we’re knee-deep in the process again, and it seems a fine time to let other metal fabricators know what we’ve learned and what other factors to consider before embarking on a potentially costly relocation.
Align Facility With Business Strategy
Shaking off the loss of our multimillion-dollar customer, we examined our entire business strategy and set out to diversify our customer base to reduce the impact of any single customer on the overall operation, yet we diversified in such a way that the range of products and services remained related to our core competency in metals.
We wanted to add TIG welding and plasma cutting equipment, for example, and expand our logistics and distribution services. We looked for growth opportunities and then considered how much space would be needed to pursue them effectively. From that perspective, it was easier to envision the ideal facility and then determine if we could set up the existing facility to suit our business strategy, or if we’d need to move.
By setting up the facility to maximize efficiency and by consolidating everything into as little space as possible, we were able to avoid moving while leaving ample space for a tenant to help pay the rent. Had our business strategy focused on scaling back and retrenching instead of on growth, then the strategy would have suggested downsizing to a smaller facility. Many companies can probably reorganize their plant layouts and internal processes to better align them with their business strategies, and avoid having to move or at least delay the need to move.
We felt confident we could stay in our new facility because of the success of our new product line, the TAB Wrapper Tornado, an orbital stretch-wrapping packaging machine that wraps plastic film 360 degrees around and under a palletized load to secure the load to its pallet as a single unit. At the time, warehousing and distribution for the building and hardware industries represented more than half of our business, and the real estate crash was most definitely affecting our bottom line.
But our TAB Wrapper product line grew even during the downturn because it helped make companies more efficient and cut costs out of the supply chain. We sold four the year we introduced it, then 52 the next year, then 200, mostly to metal fabricators.
Move Only When Necessary
We started using the orbital wrapper to deliver our products to our customers, which made our packaging and shipping department much more efficient and safe. But the more products we sold, the more room we needed for manufacturing. In-process wrapping machines quickly consumed our available space.
The loading dock became a makeshift storage area for materials and served as a second assembly zone. To receive deliveries and to load and dispatch our own trucks, this production zone had to stop working and clear the area. We were trying hard to use all of our space without moving.
Then winter came, and despite all of our space-saving efforts, our custom assembly, fabrication, and machining business was also doing very well, and there was simply nowhere inside to move the wrapper product line production. After the Mexico experience, and given the uncertain economy, it was with great hesitation that I finally accepted the growth that our wrapper product line demanded. Over the years we’ve learned to move only when necessary, and that time had come. We needed a bigger facility.
Don’t Rule out Old Industrial Centers
The gigantic, multinational corporations can invest millions in the site selection process. They hire consultants and have the luxury of considering locations throughout the world, even if it means laying off or relocating large numbers of workers. By contrast, family-owned and -operated companies are more likely to consider staying in the same area near their customer base and near their workers. And, yes, as owners, we’d like to keep our commutes as short as possible too.
As far as the need for a site selection consultant, we’ve relocated so many times that we think we’re our own best consultant. One of the first steps is to determine the ideal region and then narrow it down to the city or town. Since our roots as a family and as a company are set in Reading, Pa., and many of our customers are located in the mid-Atlantic states, we initially focused on towns in southeast Pennsylvania. Besides Reading, we also looked at Lancaster and Ephrata, both about an hour’s drive west from Philadelphia.
To find out about potential incentives, we called the Greater Reading Economic Partnership and opened up a treasure trove of resources, support, and expertise that cemented our decision to relocate to Reading. Their team helped fund a research study on warehousing; provided office space to impress overseas prospects; and put us in touch with the key city officials and business leaders, several of whom have become customers. It was their perspective that helped us re-examine some common myths in the relocation thought process.
For example, many companies build or lease warehouses in rural areas near an interstate highway exit to save on the cost of land and rent. It’s convenient for their trucking fleets and provides a clean site with space to expand. Since we’d been located in semirural areas, it never really occurred to us that we were missing out on a host of benefits available by operating within urban centers. By siting in large population centers, companies enjoy access to a large pool of workers with a variety of skills and experience, and many can walk to work or use public transportation instead of commuting by car.
In our case, the industrial mindset woven into the Reading area with its rich history in mining and metals played an important role. Urban centers also offer access to a variety of vendors and partners, from banking and financial support to technology and construction. It was as if we moved into a resurgent neighborhood of like-minded businesspeople all working as a community network. Certainly, moving into an older building may require a slew of upgrades, but check with the appropriate economic development office. It’s likely they can point out tax breaks and incentives to offset some of the costs.
Leasing May Be a Good Option
Many of us have been raised and conditioned to think that owning real estate marks the pinnacle of success, that it always appreciates in value, and that paying rent rarely delivers a greater return than ownership. However, owning a commercial building also brings a series of ongoing headaches, responsibilities, and potential crises that divert money and attention away from running a profitable business.
Consider property taxes, liability, and insurance; facility maintenance and repairs; landscape maintenance; gas and electricity; natural disasters; and zoning. Some people may not be prepared to manage these issues. We thought we were and then realized it wasn’t worth the aggravation when weighed against leasing a facility.
Warehouses and other commercial-industrial buildings aren’t exactly liquid investments, so a business that outgrows the space may have trouble managing a relocation and selling the building at the same time. Consider that investing $2 million in a building with a 20- to 30-year mortgage restricts how easily a company can reinvest in itself and move, if needed. Leasing for only three to five years helps manage the risk of running a business in a volatile economy, where we need to respond quickly to changing customer needs, implement new ideas effectively, and launch new products and services.
Leasing costs are fixed and consistent regardless of the weather or a sudden hole in the roof, which helps business planning. And if growth demands more space, then the shorter-term commitment offers important flexibility.
Regardless, don’t be afraid to buy or lease in a down market, since the costs and rates will be lower on the available properties.
Plan Ahead for the Move
Our first move from a 2,000-sq.-ft. garage to an 8,000-sq.-ft. facility was done in a day with a single box truck. Moving to a 30,000-sq.-ft. facility took far more planning and coordination. Our third move took three days. With each move, we evaluated how well we managed the process and considered how to improve the next time.
Consistent customer service, product quality, and on-time deliveries simply cannot be compromised during a move. Our current move to a 50,000-sq.-ft. facility could cost us up to $100,000, so efficiency is critical.
A first step is to be upfront with the workforce. Announcing a move can start people looking for a new position, especially if geography is an issue. When a new location lengthens commuting for people, our policy is to give raises to offset the cost and inconvenience, then set up teams who are responsible for specific parts of the process, such as emptying inventory from racks, dismantling racks and loading trucks, and unloading trucks at the new facility.
We hired temporary workers and held daily meetings to apply resources where they were needed most. Breaking down what needs to happen into very mundane tasks ensures no time is wasted and everything arrives at the new facility safely and in an organized way, ready for setup. Planning ahead minimizes downtime.
The Business and Facility Are One
The facility plays a central role in a company’s cost structure, production capacity, and profitability. Don’t bite off more than you can chew. If business has slowed, then it may be time to consolidate operations in a smaller space or consider moving to a facility with a more forgiving cost structure that more closely aligns with the pace of business. Moving may be the driver that helps restore profitability or at least buys time to assess the business strategy without the same cost pressures.
But if business is booming and it’s no longer possible to uncover or create more space from existing square footage, then congratulations—it’s time to start the relocation process.
ABOUT THE AUTHOR
TAB Industries LLC
2525 N. 12th St.
Reading, PA 19605