1. For traditional manufacturing projects, the timing of siting a new facility is a fairly rapid process, normally occurring approximately one year from project identification to final decision.
2. The forces driving the decision primarily are born from actions to meet rising demand, expanding into new markets or to reduce overall distribution costs. For these rapidly moving projects, companies tend to limit their search to identify areas whose attributes include a close proximity to raw material suppliers, an existing building or pad-ready site, and an adequate labor market that can be utilized to the corporation’s advantage.
3. With advanced manufacturing organizations, the essence of their operating model is to capitalize on the explosive growth curve of new technology, creating disruptive change. This change could be for existing companies in their particular industry, or in some cases, creating entirely new industries.
4. Their technological breakthroughs have taken many forms. Innovation can stem from areas such as the fabrication of new materials, for instance composites and ceramics, additive manufacturing via 3D printing, robotics, micro-manufacturing and clean room production. These are only a few of the descriptors for what many people now define as “advanced manufacturing.”
SIMILARITY AND DIFFERENCES BETWEEN TRADITIONAL AND ADVANCED MANUFACTURING
1. There are both similarities and differences between traditional and advanced manufacturing. They are similar in areas such as the use of transportation modes (road, rail, water or air) to move raw materials and finished product. They both utilize a functional organizational structure combining both production direct and support personnel to make up their workforce. Ultimately, they all have overarching goals of safety, quality and productivity to increase profitability.
2. For advanced manufacturers, and from a site selection perspective, the two attributes that are fundamentally different are that they are highly engineered operations born out of extensive R&D and, since a first of its kind of facility has to be built and proven, their implementation timeline can be significantly longer.
3. These two fundamental differences have distinct implications on how these projects should be approached from an economic development perspective—the first requires simple, short-term integration into an existing region’s supply chain, while the advanced manufacturing project requires creation of an overall environment designed to allow the local existing supply chain to optimize itself.
4. A particular company’s supply chain is a fulfillment process of receiving raw materials into the facility, processing those materials by adding value and finally shipping finished product to the customer.
5. However, once you combine all of the manufacturers in a particular region, the aggregation of those supply chains (and the organizations that primarily support those companies) is the manufacturing cluster. In addition to the physical companies, there are dynamics that can take many forms, via programs and activities that are created to support growth for the overall manufacturing environment.
6. For advanced manufacturers, coupled with existing companies, this dynamic, living environment can be characterized as the region’s “meta-chain.”
META-CHAIN
1. In other words, for any given region, traditional manufacturers’ supply chains are co-existing while concurrently cooperating and competing with each other. Advanced manufacturers, due to their nature of explosive technological growth, will add complexity, therefore requiring advanced supply chain initiatives in areas that can be perceived with more distinct differences than a traditional manufacturing plant. It’s the “everything else” outside of the four walls of the facility and their suppliers’ facilities that needs to be enhanced.
2. From a timing perspective, economic development initiatives at the project level can help improve a company’s supply chain within the specific timeframe from project announcement to full production (roughly two to five years), whereas meta-chain initiatives may take significantly longer to implement, therefore transcending political administrations at both the regional and state levels.
QUANTITATIVE COST ANALYSIS AND QUALITATIVE CONSIDERATIONS
1. A traditional manufacturing siting decision is primarily a function of a quantitative analysis of start-up and ongoing operational costs. The cost analysis performed is not for all costs, but for significant variables that will fluctuate by site. These costs primarily include labor (including payroll taxes and benefits), real estate costs, utilities and communications costs plus local property, sales, state income and franchise taxes. Depending on the significance, a transportation cost analysis per site may be performed and included in the overall model.
2. Normally these analyses are estimated over a 20-year period. This analysis allows the team to identify the impact of overall costs while incentives are being utilized, and also for some period of time when those incentives expire. Once these nominal costs are calculated, they are then discounted via a net present value calculation using a discount rate that is at or near the project’s weighted average cost of capital (WACC).
3. While the result of this quantitative analysis indicates the “winner” from a cost perspective, it is only prudent for the project team for advanced manufacturing projects to provide some level of qualitative analysis for potential changes (some foreseen and some unforeseen) that can and may occur over the lifetime of the project. Qualitative considerations are given for items such as quality of life, political stability, local economic health and educational system performance, among others.
4. The only constant in life is change, and over a 20-year lifetime of a project, the overall manufacturing environment will also change. It can be for better or for worse, or only have nominal significance. It is up to the project team to analyze those factors and include that in a risk analysis to see how that will impact the final decision.
5. An advanced manufacturing siting decision does not have to have a singular focus on finding the location with the lowest cost. But it can be to find a location that may be close to the lowest cost location, while having an overall environment that will allow the company to grow and prosper over time.
6. The qualitative analysis can occur at any time. For some projects, it can serve as the initial filter to qualify sites for consideration. This is especially true for advanced manufacturing projects where the technology is so new the supply chain will have to be developed concurrently with project start-up.
7. For others, it occurs once short-listed sites are stratified via cost, and the cost differences between the top three sites are very close, such as a few percentage points (as compared to total costs) over the 20-year timeframe. For most projects, however, the qualitative analysis constantly occurs as positive and negative attributes of a region are identified during due diligence.
Source:https://www.tradeandindustrydev.com/industry/manufacturing/creating-environment-attract-advanced-16244
