Real estate as an asset not a liability: shifting perceptions global manufacturing

Geopolitical dynamics, changing consumer demands and the globalisation of supply chains are all reshaping global manufacturing. Real estate models need to reflect the pace of change, adopting a data-driven approach to support and drive business decisions.

 

In today’s global marketplace, manufacturers face new trade-offs. Where to locate production facilities? How should products be manufactured? Who will be performing the work? What level of automation should be used? What role can digital technology play to improve operations?

Global real estate strategies must be flexible to support investment into new markets, keep operating costs at a minimum, rationalise and consolidate portfolios following mergers and acquisitions, and make informed decisions about legacy properties at the end of their lifecycles.

However, real estate for some global organisations can be perceived as inflexible. It can be viewed as a barrier to fast-changing operating models and a ‘cost adder’.

This is undoubtedly a challenge for global real estate portfolio managers. They need to deliver the right space, in the right place, at the right time to meet commercial need. But whereas operational or product cycles for a manufacturing business may run for two to three years, a property lease will stand for much longer, creating a potential disconnect between the business’ objectives and its real estate obligations.

Global real estate strategies must be flexible to support investment into new markets, keep operating costs at a minimum, rationalise and consolidate portfolios following mergers and acquisitions, and make informed decisions about legacy properties at the end of their lifecycles.

Data disconnect

Bridging this gap relies on experience and expertise to make good, data-backed decisions. Real estate must be a service provider for a manufacturer’s commercial and production strategy. This means a clear picture of the make-up of a global real estate portfolio – the age, location, size and cost to build and maintain assets is vital.

The lack of a clear global dataset is often a barrier to success. In our experience, the nature of global portfolios and real estate markets is such that information can be difficult to standardise; cultural differences, measurement and lease arrangements, and decentralised teams with differing skill sets can make it difficult to assemble and rationalise the key information to enable site comparisons and ultimately make informed decisions.

Because companies are not recording or do not have access to historical data, they may struggle to measure individual properties’ benefit to the bottom line. Without an accurate dataset it can become difficult to understand legacy buildings and whether they should be disposed of, or if there is scope to repurpose them for a new commercial use. Consequently, decision-making can be ill-informed.

All too often global estates are not consolidated and rationalised expediently following mergers and acquisitions. There are incidences where a merger between global manufacturing companies can result in two facilities in the same city, and a lack of data about individual properties can impede the decision-making process when it comes to asset disposals.

A framework for success

Global real estate teams need to respond by establishing a global framework for recording information about the asset and its performance in a way that is accurate and consistent across multiple sites and regions. The aim should be to develop a standardised approach to building and operating facilities which makes data king.

The detailed requirements of any data-led strategy will need to closely reflect the priorities of a specific business. The essentials may seem obvious – to accurately identify the performance of physical space we need to know the constraints associated with real estate, including its size, location and lease commitments. However, to support an agile manufacturing business we also need to dig further. How could the space be adapted to suit new product lines? Would the utility infrastructure support new power requirements?

Having accrued this data, a strategy and framework for analysis needs to be established which can combine with commercial insight on the ground to inform decisions about how the portfolio should be managed. This could include decisions on where to locate new manufacturing lines as well as whether to rationalise or extend portfolios.

Because companies are not recording or do not have access to historical data, they may struggle to measure individual properties’ benefit to the bottom line.

Shaping business strategy

With detailed understanding of the data, companies can benchmark across regions to generate insights about how the portfolio can better align with wider business drivers. While real estate teams need to act as the owners of data, they need to demonstrate how it can be used at board level to manage operating costs and drive asset performance. In this way the case can be made for real estate as an asset and not an overhead.

We recently helped a global semiconductor company to assess its four global sites and respective facility management approaches in order to reduce waste and facility downtime. By combining site data with our understanding of manufacturing and the client’s operations, we were able to consider hard and soft facts about each site, identify key issues and risks and set out a best practice approach for each facility to adopt.

Manufacturing business models are undergoing profound change and this is bringing both new challenges and new opportunities for real estate portfolios. Real estate teams therefore need an improved global understanding of their assets, which must be underpinned by a dataset to measure the cost of building and maintaining facilities in different regions. Improving speed to market is a fundamental benefit, but this approach could open many other key benefits in the future.

For further information, contact:

Bernhard Brandstetter
Director - Germany

t: +49 (0)89 550 545 – 0
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