Site Closures and Footprint Reductions: What Every Asset Manager Needs to Know – Part 1

Introduction

Many organisations will eventually face the challenge of closing a facility. Closing is no small task, as it usually involves redeploying, selling, or disposing of millions of rands of real estate, manufacturing equipment, systems, and other surplus assets. In addition, asset disposition and redeployment processes must strictly adhere to government regulations and comply with industry standards. Finally, many organisations have their own sustainability metrics to meet.

A facility closure and ensuing dismantlement can be thought of as a major construction project in reverse, with the added complexity of undoing years of operations and changes. That is why every phase of the closing process must be carefully planned and monitored to avoid safety, environmental, legal, and financial problems.

The Project Lifecycle

So how do you successfully navigate all of these issues while maximizing value for your surplus equipment and mitigating potential risks? Although closing a site is a complex challenge, the process can be simplified by following the four key steps of the Project Lifecycle: Initiation, Planning, Execution and Close Out.

Step 1: Initiation

During Initiation you define the preliminary analysis of the project objectives and ensure that further project work is authorised. Project Initiation includes:

  • Project definition
  • Setting goals and objectives
  • Documenting project costs and benefits
  • Developing a project charter
  • Obtaining project authorization

Effective pre-shut down management entails a closely coordinated effort among all involved to develop a road map for moving the plant from production mode to shut down, cleanup, Investment Recovery (IR), and dismantlement. To get the process started, the manager first needs to define, in writing, the scope of the work, the timeline, and any local issues (safety and environmental concerns, unemployment, etc.) that might affect the project. The manager should seek the assistance of the IR department in providing quality processes and best practices during this project development stage.

Step 2: Planning

When creating your plan it’s important to include:

A comprehensive closure plan will help you determine the budget and timeline for the management, valuation, redeployment, sale, and removal of assets. Also, be sure to set a firm closure deadline and stick to it.

  • Statement of work: This formal document captures and defines the work activities, deliverables, and timeline one must execute in performance of specified work. It usually includes detailed requirements and pricing, with standard regulatory and governance terms and conditions.
  • Project cost elements and benefits: This is a documented project cost and benefit analysis.
  • Confirmed corporate goals, timeline, and executive sponsor (the highest ranking member of the project): This requires careful coordination with management to ensure alignment.

Questions Your Plan Should Address

  • Is the facility being shut down completely or partially? If partial, how can work continue uninterrupted in the areas not scheduled to close?
  • When is the last job scheduled and when must the facility be vacated?
  • What in-house resources do you have to support the closure?
  • What potential legal, environmental, and safety risks exist, and what steps will be taken to mitigate them?
  • How will raw materials be managed?
  • What conditions are the assets in?
  • Do you know what the assets are worth?
  • Can certain assets be redeployed to other facilities? Which ones?
  • Should you partner with an outside organization to help you in the process?
  • If you use a partner, will it be one who can maximize the financial return and provide necessary resources?

Identify Your Team

The success of any project depends on the people involved. Your team, which typically includes internal personnel, should be very familiar with your facility to ensure a streamlined, compliant closure.

Your team will most likely include:

  • Unit/business manager
  • Facilities manager
  • IR manager
  • Environmental manager
  • Safety manager
  • Engineering manager
  • Procurement manager
  • Site security
  • Labour relations manager
  • Public relations manager
  • Project attorney
  • Contractors

It’s conceivable that your company might not need all of these team members. It is very much dependent upon the nature of your business. It is highly likely that your team will include personnel from your company’s Information Technology, Human Resources, Legal, Finance, Supply Chain Management, and Engineering departments. If your organization doesn’t have all of these resources, it might be appropriate for you to consider working with an outside partner with extensive expertise in your industry who will have the means to efficiently tackle the issues involved, saving you time, personnel resources, and money.

Contractor Evaluation and Selection

When closing a facility for any reason, a best practice is to have a process in place for the management of surplus assets. This is usually a large undertaking, as businesses create teams and fill roles dedicated to inventory counting, valuation, sales, removal, shipping, and dozens of associated tasks. If these processes are not streamlined or efficient, organizations will fail to get their full return on investment.

Often internal asset disposition teams or facility managers need assistance when closing down offices and production lines. Closing down a branch or facility is difficult, and it’s a task that requires help from a trusted asset management service provider. Many businesses turn to asset management partners to make the closure process easier. But how do you select a partner? A trusted surplus asset management provider should be able to help determine your assets’ value, make value-based decisions about whether to sell or redeploy, sell your assets for maximum recovery, and mitigate all potential risks.

Look for an Outside Provider Who Can:

• Leverage metrics and marketing strategy best practices

• Drive “green initiatives” and sustainability programs

• Provide solutions to mitigate compliance and ethics risks

• Seamlessly meet international business needs through a global operational footprint

• Offer robust, wide-ranging services

• Maximize recovery through multiple sales methods

• Achieve a high sell-through rate, minimizing the number of assets going into a landfill

• Offer redeployment solutions

Inventory Assets and Determine Whether to Redeploy or Sell

The last step in the planning process is to inventory all assets in your facility and determine which should be redeployed and which should be sold on the secondary market. This should begin three to six months prior to the plant closing its doors. An outside partner can efficiently inventory your assets, saving you time and money. Should you work with an outside partner, be sure to select a partner with extensive expertise in your industry and asset categories. Once you’ve compiled a full inventory list, make it available in a web-based solution or distribute it across your organization so team members can select assets to redeploy. Set a hard deadline for these selections. Generally, high-value assets – especially those with long expected lifespans – should be redeployed if possible. Conversely, assets should be sold if they have lower values or if their breakdown, removal, shipping, and installation costs exceed the costs of purchasing new. If you plan to redeploy or sell a large number of assets, or assets that are unique or highly valuable, consider enlisting an outside partner to manage this process. Outsourcing these functions to an experienced provider will allow you to focus on core business while maximizing value for your facility closure.

Inventory Procedures

•  Inventory, catalogue, and photograph all physical assets

•  Inventory building infrastructure to be salvaged (copper wire/pipe, stainless steel, etc.)

•  Identify any decommissioning, permit, removal, and health and safety issues and costs, and develop an environmental assessment and waste disposal plan

•  Provide visibility of all site assets for internal redeployment using an enterprise-wide web-based software tool

•  Develop a schedule based on approved changes and project team support

Stay tuned for Steps 3 and 4 to be posted next week!

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