Adding Floor Space Versus Re-Designing Workflow

A company that's cramped for space may need more room. But consider also the option of re-configuring your work process. July 3, 2006

I own a small 4,000 sq. ft. cabinet shop, with 6 full time employees. We produce premium work, and command premium pricing. I am beginning to search for a larger shop, since we are usually wall-to-wall with cabinet boxes in our current facility. Right now we have no less than 200 boxes on the floor, in various stages of build-up through finishing. Needless to say, it gets pretty crowded at times.

I have an opportunity to lease a 14,650 sq. ft. shop nearby, complete with fire suppression, 230/460 3ph power, existing storage racks, existing air lines, existing spray booth, offices, all at about 3/4 the square foot price of my current shop. But 3/4 the square foot price for a shop 4x the size is still more than I could afford right now.

We are well poised for growth, having just attracted the attention of some key people in the kitchen industry. Every time I run the numbers, it seems to work. I can arrange the lease to be friendly up front, allowing me to get settled in without such a sticker shock for the first few months. But something in the back of my mind is still holding me back. Have any of you ever dealt with this same apprehension before taking a similar plunge? If so, please offer advice on the best way to plan for a large move, and what, if any obstacles I can expect.

Forum Responses
(Business and Management Forum)
From contributor S:
How many years have you been in business? What if anything have you done to increase efficiency? What is your final business model and how many square feet will it take to properly set it up?

From contributor D:
It's called fear and it gets us all. I have grown many times, and am now helping others grow. There is no magic formula, but my advice is to have your existing customer base force you into growth... not potential customer base. Never grow on a "what if" scenario. If the numbers work, maybe it is time. Make sure the numbers work for your existing rate of business, not potential business.

Surprises? Yes, there are a few. Electrical can cost for relocating existing equipment into it's new spot, insurance costs tend to creep up. Not knowing the extent of the equipment you have, rigging and tech costs can mount up as well. Dust collection is another point to consider. I am sure you have thought these through. When I was at my largest, I did not own the company; it owned me. I was victim of a corporate take-over and it turned out to be a blessing in regard to my private life. Make sure you are ready to triple your size. Doubling may be easier.

From contributor X:
The cost of growing can have many different costs hidden from sight. Example: Time spent moving, packing, sorting, waiting for machinery to be hooked up for electricity, blower system, lighting. The list goes on and on and so does the cost of doing all this. Incidental costs. While still producing a product. Takes plenty of planning and cooperation from all involved. Time is the problem. If you could move in without missing a beatů

Another thing to consider is a business slump, should that occur. Can you sub out part of the building if needed? Can you increase sales? What additional costs will you incur because of expanding? How will it effect the cost of your products and will your consumers be there purchasing? A lot of questions to be asked and answered. Not an easy chore.

From contributor P:
If you are buried in work in progress, the first question is whether you are finishing work up and delivering it fast enough. However, to get back to your original question, the jump you are about to make sounds reasonable assuming the facility really works for you, i.e. the building isn't falling apart, the landlord is reputable, the location has access to your markets, and the layout isn't hopelessly inefficient (as in many different levels and/or rooms.)

We made a similar leap 3 years ago, from 6k sf to 17k, and even though we didn't fill it up on day one, it was a good thing to do, as 3 years after moving in we have filled the original space and added another 10k sf. When you make this move you need to be thinking of not only your needs at the beginning of the lease, but at the end as well. Shop space is one of those things that you have to buy in big chunks. But having enough room to do your work will increase your efficiency.

One other expense you might not have considered: when you get to a space that big, you don't want to have expensive cabinetmakers cleaning up, moving things around, unloading trucks, etc. So plan on hiring a shop helper to do all grunt work and cleaning. This frees your skilled guys up to make you more money. Best of luck with this. My vote is that you should do it.

From contributor A:
One way to ease that fear is to sublease a few thousand s/f to another business. Put up a wall, share the dock, give them a key, keep it cold, and everybody is happy. Around here, cold storage with a dock is worth $5.00 to $6.00 a s/f easily. Then with an annual lease, you can expand as you need, and have some cash flow prior to that to pay for the space you may not need immediately.

From contributor L:
We moved into 4,000ft in '87, took over another 4K in '89 (bought the building), added 6K in '91, and added 10.5K in '94. The business started running me, so I had to slow down and get things under better control. Finding good employees for the expansions was the hardest part! I'm currently considering another addition of about 3k, getting short on lot space. One thought - it's a lot harder to downsize than grow! If you decide to go with the new space, model it many times for your new layout, considering future equipment and possible additions. Can you have a lease/purchase deal? Around here (NE) this kind of space goes for $4 to 4.5/sq ft/yr net/net. This building has 18' sidewalls. I wish it were 22' so we could double deck better and stack higher on racks.

From contributor T:
If you have 200 pieces of work in process at any given time, your problem is management, not building size. Get this part fixed first. While you still can.

From the original questioner:
We have 200 pieces in production because we have no shortage of orders moving across the floor (our current job is a $100k package). We have very few problems producing on time. Often we are completing projects ahead of schedule and storing them until the houses are ready (at a fee to the architect/builder/designer, of course). This is clearly not a management issue (not to say there is no room for improvement).

I am stating here that we are out of space, and for the volume of cabinets we build on a regular basis, I need a larger facility. I spoke with a very successful business leader (in an unrelated field) and he informed me that no matter what I expect the move to cost, double it for a more realistic number after all the dust settles. I also value the advice to "allow your existing customer base to force growth... not potential customer base." But if I lease a 10,000 sq. ft. building to suit my current needs, who's to say that in a year I won't be in the same boat, wishing I'd gotten the larger space?

From contributor T:
I apologize for my abruptness. I was very terse in my appraisal of your management outcome. There is an excellent article about this topic in an old issue of Modern Woodworking (Nov 2002). It was about a company that had a mandate for growth. In order to keep up with their customers' expectations, they forecast the need for a $7 million expansion in their facility. The problem was that they did not have $7 million to float this growth.

They had a lot of gurus come in to look the deal over and they advocated for some fairly complicated and expensive options. One of these gurus was a LEAN guy who, after surveying the operation, concluded that they could probably stay in their current building at their current rate of growth for another 5 years or so.

At the time of this recommendation, this company typically had 350 pieces of work in production and a process time of 4 to 6 weeks, start to finish per order. They cut their batch sizes down from 350 pieces to 80 pieces and converted the real estate that this work-in-process required to smaller, dedicated work stations. These work stations reduced their setup costs and minimized how far they had to travel to get from one station to the next. They cut their transit costs (non-value added activity) from 1.2 miles to 1000 feet (15% of previous).

The net impact of these changes were that they went from 4 to 6 weeks production time down to 2 to 4 days and they did this without incurring the costs and risks of moving to a new and more expensive building. I imagine they also improved their cash flow because work became billable sooner.

A lot of work-in-process takes a lot of real estate. The stuff has to sit on carts and the carts have to have aisle ways to travel through. This is elbow room you could be giving your guys at the workbench. A finished product stacks tighter, is safer and gives you more room to work on the products you have prioritized. Less work in process is also easier to understand. Optimizing the efforts of 6 guys (if they each did just one task) is a challenge all by itself. Two hundred pieces of work with 6 guys would be enormous.

I guess my original observation would be better stated that the type of management systems you will need in a bigger company will be different than the ones you need as a smaller company. Just like you want to have the electricity in place before you move, it would be great to have the management systems in place for the bigger company. Sorry if I shot from the hip.

From contributor E:
"For instance, right now we have no less than 200 boxes on the floor, in various stages of build-up through finishing."

That comment indicates that those 200 boxes are indeed work in process. Work in process is completely different than work that was completed before the home was ready to receive it. We have that problem from time to time as well. I have a shop the same size as yours, doing the same type of product as yours. Never do we have more than 30 cabinets in process from raw wood to finishing, regardless of whether the job is $30,000 or $300,000. Before committing to more space, I think that you should examine the concepts of a leaner production system.