Facility Consolidation Grows Revenue and Cash Flow

Too many facilities or too much production space can adversely impact product and company profitability. TMP Technologies Inc. improved its cash flow and the profitability of a unique product by analyzing the feasibility of consolidating its facilities and improving its production layout.  The results show that companies need to look at many variables before making long term decisions. 

"...the analysis and subsequent consolidation enabled us to convert a loss operation into a profitable one with substantial growth potential moving forward.  This result would not have been successful without Insyte."   Bob Laughlin, CFO

Firm Benefits

• $75,000 annual lease expense eliminated

• $55,000 annual facility expenses eliminated

• $16,000 invested in capital improvements to modernize

• 20% increase in foam sales due to improved cost structure

• Improved efficiency in Engineering and Purchasing Departments

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About TMP Technologies Inc.

TMP Technologies Inc. (TMP) was founded in 1954 by a small group of entrepreneurs. The company manufactures fabricated high-precision foam assemblies for demanding applications in medical, electronics, industrial and consumer products. One of its key products is the Magic Eraser seen in many stores.  At the start of this project the company had four facilities - two in Buffalo, one in Wyoming and one in Niagara Falls, each making a specific product line.

Situation - Unprofitable Product Line

The company manufactured a foam product, with unique formulation and properties at its Niagara Falls facility.  This product appeared to offer significant growth potential despite representing only about 6% of the company's product mix.  TMP only used one-third of the amount of product produced for its own production needs, and sold the other two-thirds to other foam fabricators.  The product line was not profitable, so the company considered the following options:
• Drop the product line;
• Outsource the manufacture of the product under a licensing agreement; or
• Consolidate the foam production facility into one of its other locations to reduce overhead costs

The first two approaches were quickly eliminated.  The product line offered significant growth potential and the licensing approach raised intellectual property and quality concerns. 

At this point TMP's senior management staff contacted Insyte Consulting to evaluate the feasibility of consolidating the Niagara Falls operations into one of the company's Buffalo facilities. The company previously worked with Insyte Consulting on several projects and was confident Insyte could help. 

If consolidation was feasible, significant overhead costs (labor, lease expense, utilities and transportation) could be eliminated.  Improved operations and control were also viewed as potential opportunities.  There were specific concerns, however, whether the Buffalo fabrication facility had sufficient space to house its own production and the Niagara Falls' product line. The cost associated with the required physical changes was also a major concern. If the consolidation proved feasible from a cost perspective, the subsequent layout work and physical move needed to be completed within six months to coincide with the lease expiration at the Niagara Falls facility.

Solution – Consolidation

The first phase confirmed the feasibility of relocating the Niagara Falls manufacturing operation into the Buffalo facility within six months. The analysis examined both technical and financial components.  Technical components included physical space, product/quantity determination, material handling alternatives, inventory analysis (raw, work in process, finished goods) and storage alternatives.  Financial components included lease payments, transportation, storage and personnel costs.  The second phase analyzed current work flow, historical and future product volumes, expected product mix and existing equipment to determine footprints.  It also considered facility requirements (i.e. utilities, material flow and storage) necessary to incorporate the Niagara Falls operation into the Buffalo facility.  With this information, Insyte Consulting developed alternative high-level draft layouts based on projected volumes for the product lines and selected the optimal layout.  A detailed layout of the consolidated operation was completed, along with a project plan for the execution of the relocation before the Niagara Falls lease expired. This project plan included demolition of existing walls, construction of new rooms, elimination of some existing equipment, build up of inventory and implementation of new storage methods.  TMP successfully executed the project plan to complete the consolidation within the required time frame to eliminate the lease obligation in Niagara Falls, increase cash flow and capture all expected benefits quickly

The results – less than 2-year payback

Although significant capital expense was required to complete the consolidation, the payback for this investment was less than two years based on annual cost savings of $130,000. Since the move, foam sales for this product have increased by 20% and the company now has strong growth expectations with several multi-national Fortune 100 companies. TMP has also experienced a number of operational benefits, including reduced chemical costs and improved efficiency in the Engineering and Purchasing functions through the elimination of an additional site.