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(originally published by Booz & Company)


Relocate? Transform? Which Option Is Right?

Also, in its brownfield plants, the company replaced fixed working hours with flexible time accounts. This allowed the equipment maker to better handle seasonal demand fluctuations and trim labor costs in its Western sites at the same time. With this go-slow strategy, the company ultimately transferred to low-cost countries about one-third of its payroll and more than one-fifth of its costs.

By examining the issue of relocation versus transformation in an open, broad-minded, and diligent way — that is, without knee-jerk responses — companies can plan a manufacturing strategy that is both profitable and defensible. If, after a careful analysis, it turns out that manufacturing in the West is not sustainable, it will be far easier to intelligently argue for relocation with stakeholders, increasing the chances that shifting operations to, for instance, Russia, Turkey, or China will be successful. After all, customer, employee, or union backlash can spoil relocation at its earliest stages. It is perfectly evident to employees, unions, suppliers, and customers when factory decisions were not based on a detailed comparison of transformation-versus-relocation options.

This means that “relocation or transformation?” should not be viewed as a dilemma; instead, it is an opportunity for companies to revisit their manufacturing strategy and create an outcome that generates the most lucrative returns and the most positive stakeholder response.

Author Profiles:

Hans-Jörg Kutschera ([email protected]) is an associate with Booz Allen Hamilton in Munich. Mr. Kutschera focuses on manufacturing strategy, cost reduction, make-or-buy decisions, and factory footprint optimization.

Peter Obdeijn ([email protected]) is a senior associate with Booz Allen Hamilton based in Amsterdam. His focus is on cost restructuring of manufacturing companies, with an emphasis on revitalizing plant networks by taking advantage of opportunities in low-cost countries.

Michael Ilgner ([email protected]) was formerly a principal with Booz Allen Hamilton in the Munich office, where he focused on manufacturing and supply chain strategy. Currently, Mr. Ilgner is managing director and board member of the German Sport Foundation (Stiftung Deutsche Sporthilfe).

Peter von Hochberg ([email protected]) is a vice president with Booz Allen Hamilton based in Düsseldorf. He has extensive experience in consulting with clients on manufacturing and lean production, focusing on automotive OEMs and suppliers, and industrial goods manufacturers.
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