Scale facilities and the tradeoff with distribution networks

At a macro-strategic level, the question of when to pursue a large-scale manufacturing approach versus a distributed set of smaller facilities is an increasingly important issue for process/network design.

The lean process thinking has long advocated for considering smaller, flexible processes and operations with less emphasis on scale per se and an emphasis on small lot production, moving as close as is practical to “one-piece flow.”

Beyond the minimization of work-in-progress and finished goods through a push and large batch approach, this philosophy has gained additional merit as the cost of transportation has increased. Whereas a large-scale facility might make sense under certain fuel cost conditions, careful study is required to understand when the cost of the supply chain (both inbound and outbound) begin to out weigh the benefits of a scale facility.

To add more dimensions to this issue, one should consider not just scale manufacturing but also scale transportation. Railways have undergone something of a renaissance as they work to exploit their weight-to-fuel advantages over trucks. But there is also continued evolution in the area of long-range freighters. I was reminded of this when reading of the completion of the Vale Brazil, the largest iron-ore carrier ever built with a carrying capacity of 400,000 tonnes. Amazingly, this is only one of a fleet of 19 ships of this class that will haul iron ore from Brazil to China. The economical raison d’être of this vessel? It will lower the freight costs by 20-25% from about $21-22 per tonne to about $17-18 (all U.S. dollars).

This impressive vessel has a length of 362 meters and its 400,000 tonne capacity is 4 times the capacity of the U.S.S. Nimitz, an aircraft carrier of the U.S. Navy. Only the Emma Maersk at 397 meters is longer than the Vale Brazil and none have a greater capacity (the tanker Knock Nevis had a capacity of 565,000 tonnes but it was scrapped in 2009).

It is important that performance improvement professional work to keep abreast of the innovations in all aspects of manufacturing and global logistics lest our mental benchmarks of “what is possible” are out-paced by events outside of our everyday work.

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