The second plant is usually the wrong answer

Every few months a board asks us whether to build a second plant. The order book is full, the sales team says it is turning work away, and a site is available. Building feels like the responsible answer, and nobody is ever fired for adding capacity in a growing market.

In eight of the last ten cases we have looked at, the answer was no. Not because the demand wasn’t real; usually it was. It was because the capacity was already in the building, hidden in the hours the machines stand still.

What “full” usually means

A plant that is “running flat out” is usually running at 50–60% of what its equipment can do. The rest goes on changeovers, on waiting for material, on small stops nobody records and on jobs run in the wrong order. Each loss is small and familiar, so it doesn’t look like capacity. Added together, it is often a second plant’s worth.

The quickest way to see it is to stand on the floor of the bottleneck line for two weeks with a stopwatch and the changeover log. It is not glamorous, and it is the most valuable fortnight of the whole engagement.

Three questions before the building

First: is the demand yours, or is it two customers who could leave? Second: what does the main plant lose, hour by hour, and what would it cost to win half of it back? Third: if you still need more, is a building the right shape of answer, or would a third shift, a contract manufacturer or a second line do?

If the answers still point to a plant, build it. You will build a better one, because you will know exactly what the first one taught you.