Client Business Need
The company’s manufacturing facility was located in a residential neighborhood and had become severely constrained by the geographical limitations of the site, and the fact that 24-hour operations were not possible under the current zoning restrictions.
AGA approached Manex to perform a strategic risk assessment and payoff analysis for different manufacturing and site location scenarios, involving the relocation of the manufacturing facility.
AGA was considering options that included local relocation, out-of-state relocation and outsourcing production to a plant in Mexico, using AGA’s supervisors. Manex’s approach was to look at the total “Cost of Ownership” of each plant location option, based on factor input costs such as:
- labor rates
- energy prices
- quality issues
- economic order quantities, high transportation costs and long lead time supplier issues
- political and workforce safety risk factors
Manex’s team, working the AGA Management team, assigned a range of values to each of these risk factors, and the entire risk analysis allowed for a net present value determination of each alternative.
Manex’s risk modeling gave the company enough visibility to make two key decisions:
- Set a date for moving the plant
- Choose a location that kept the manufacturing jobs within Alameda County and provided AGA with much greater flexibility in its operating hours, while eliminating extremely volatile, international risk factors
AGA could now add a second shift, doubling production and generating sales revenues up to $120MM, with a net present value over the next five years of several million dollars in cost savings. More importantly, AGA could add a second shift, using the same capital assets and go after more and larger projects. This added capacity should translate into tens of millions of dollars in annual sales.