Periodically, companies move pieces of equipment, even entire manufacturing facilities, from one location to another. IPA evaluations of manufacturing facility relocation projects—from consumer goods and pharmaceutical plants to oil and gas refineries—find these projects have a weak track record in terms of their cost and schedule predictability. This cost growth and schedule slip threatens the business case for the relocation effort. What is more, an analysis of information in IPA’s capital projects database shows the operability and functionality of relocated facilities at startup often fall short of business expectations.
Despite their relatively poor performance, relocation projects will remain attractive capital investment opportunities for companies in search of lower feedstock costs, confronted with brownfield site constraints, or confronted with government requirements to relocate their industrial operations to a less populated area. Economic uncertainty surrounding the COVID-19 pandemic could, in fact, increase the prevalence of relocation opportunities. Project leaders understanding Best Practices for relocation projects can help secure the business case and increase the likelihood of success after authorization.
Outcomes of Facility Relocation Projects
IPA’s capital project database includes many manufacturing facility relocation projects ranging from $1 million to $700 million. The relocations include local, cross country, and intercontinental moves. We looked at seven recently completed relocation projects ranging from $5 million to $600 million, completed from 2008 to 2019, in the petrochemical and consumer product sectors. A large project in the sample relocated an entire plant from South America to the U.S. Gulf Coast. While two projects in this sample came in on budget and on time, the remaining five projects experienced an average of 26 percent cost growth and 26 percent schedule slip. The rigor applied to relocation project drivers was much less compared to other new construction projects, perhaps because of the perception of scope and engineering simplicity. We identified several drivers behind these disappointing project outcomes.
One problem is the lack of clear business objectives. Often objectives are a mixed bag and sometimes change mid-way through execution. What starts as a straightforward opportunity to move existing equipment—and current operational capabilities—from one location to the next mushrooms into an opportunity to increase capacity or otherwise grow the business at the new location. Evolving business objectives obscure the project objectives and make it difficult for project teams to make decisions.
Not unlike many other capital projects, the project teams for the relocation projects we reviewed were not fully integrated during project definition. A major gap was the lack of operations and maintenance input from the existing site. The well‑executed relocation projects had input from experienced operations and maintenance personnel who were able to either relocate to the new site or spend time training new personnel. Relocation project teams that lacked experienced personnel, particularly those with the most familiarity with the equipment, encountered late changes. Further, health and safety, environmental, and soil requirements at the new location were often not well understood. Project schedules and estimates were underdeveloped and did not consider the full scope of work required.
In addition to cost and schedule erosion, poor project drivers in many instances were responsible for startup and operability issues with the facility. Some problems were related to insufficient personnel support, but in multiple other cases, the existing equipment’s condition was not well understood when it arrived to the new site. In one case, vital equipment was damaged. In another case, the existing equipment’s capabilities were overestimated and, once relocated, it was unable to ramp up to the previous operating capacity.
Key Learnings from Relocation Projects
IPA has extracted key learnings from our analysis of recently completed manufacturing facility relocation projects, as described above. These practices should be used on all projects, but omission of any one practice is particularly damaging for the relocation projects.
Here are the main takeaways:
- Clarify and document objectives and gain alignment with business on priorities. A Business and Engineering Alignment Meeting (BEAM) workshop is an effective means of gaining alignment between business and project team functions.
- Ensure critical functions, including operators and maintenance personnel from the existing site, are part of the project team.
- Understand site factors and how they differ from the original location to the new location.
- Inspect for defective and unsuitable equipment for the new location—verify the condition of existing equipment before and after transportation so the facility can maintain operating capacity and start up smoothly.
Our review reveals that manufacturing facility relocation projects, on average, have worse cost predictability and similar schedule predictability compared to non-relocation projects. Key gaps in team development and understanding project risks drive poor cost and schedule performance and cause operability and startup issues at the new facility. Ensuring teams use Best Practices specific to relocation projects during project planning and development will give teams the best opportunity to fully meet the required business objectives on schedule and on budget.
Contact IPA to learn more about Best Practices for manufacturing facility relocation projects.