Magazine Article | December 22, 2011

How To Maximize Returns And Minimize Damage When Closing A Manufacturing Plant

Source: Life Science Leader

By Karl Schmieder, contributing editor

In the past 18 months, a number of large pharma companies have announced downsizings and plant closings. Behind the headlines stand billions of dollars in real estate, and laboratory, manufacturing, and packaging equipment that had to be decommissioned, redeployed, or sold. The manager tasked with closing a facility faces a daunting task: Maximize the value of assets and minimize potential risks while juggling hundreds of details and minding a clock that is ticking nonstop toward a deadline.

Closing a facility is typically a once-a-career event. To give you a high-level overview of the process, we developed this guide.

Be Proactive
A plant closing is often a race to the finish. As soon as it is announced, you will need to do three things: Form a closing team, develop a plan and budget, and inventory the facility.

Your team will typically include the staff members most familiar with the facility and its contents: security, environmental, facilities, and plant maintenance managers. It also can include an accounting and property team. In some cases, you’ll want to hire external resources to help you inventory your plant, appraise your equipment, and sell, liquidate, or move it from one place to another. In total, your logistics team will involve six or seven different groups of people. The team should have a clear communications plan and regular meetings.

At the same time, you’ll need to put together a budget for the removal or disposal of assets and their marketing and a plan that answers the following: Are you shutting down the facility completely? Do you have assets you can redeploy in other plants? Do you plan to sell your assets and leave the facility move-in ready? And, perhaps most importantly, when must you vacate the facility?

“Don’t be the victim of a short timeline,” says Matt Smith, a VP at EquipNet, a provider of asset management services and solutions. “When closing a facility, most people tend to focus on the people, the transfer of operations, and the real estate. They leave equipment and logistics for the last minute. They forget that they’ll have to host potential buyers and manage removal. A short timeline is the number-one mistake you can make when shutting down a facility.”

An anonymous source who recently shut down a 20,000-square-foot wet lab added, “To be successful, it may take four to six months to get organized, inventory, decontaminate, and sell your equipment. Moving the equipment and clearing the facility may take as little as two weeks.”

How long do you need to close your facility?
A 1-million-square-foot processing plant can be successfully closed in 6 to 12 months if you have the right buyer or buyers in place. A laboratory requires a minimum of three to six months, especially if you can redeploy assets.

Timelines can be impacted by your building’s rules and local regulations. For example, your building may have strict policies around when you can move and use the elevators or loading docks. Your community may have environmental regulations that govern how you dispose of consumables, scrap materials, or equipment, and permits may be required for construction activities. Check locally.

If you absolutely must, you can shut down a plant in 30 to 60 days, but if you do, don’t expect to receive the maximum value for your assets. Regardless, plan on keeping the coffee pots full.

Know What You Own
The second biggest mistake a company can make when shuttering a facility is not understanding the plant’s content, what it’s worth, and how to maximize price. A small laboratory can contain balances and scales, centrifuges, refrigerators and freezers, mass spectrometers, and hundreds of small pieces of equipment. A large facility can include bioreactors, blenders, granulators, packaging equipment, scrubbers, and dozens of other large pieces of equipment.

“Unfortunately, many companies don’t inventory their facilities on a regular basis,” says Randy Small, VP of operations, North America, GoIndustry DoveBid, a provider of asset management services. “Companies that regularly conduct a physical inventory every three to five years will know where they’ve deployed 85% to 95% of their assets. They will have the documentation that shows when the equipment was last validated or calibrated.”

Once your inventory is complete, you’ll need to figure out what it is worth. You can add hundreds of thousands and even millions of dollars to your bottom line by selling the equipment. But, not all equipment is created equal. Commodity items such as benchtop equipment and labware are low risk and easy to sell. As equipment goes up in value, it becomes a bigger risk, and buyers will insist on a thorough due diligence process. This will be the case for items such as a high-performance liquid chromatography unit, a mass spectrometer, or any type of processing or manufacturing equipment.

“There is no Blue Book for used equipment, and most people don’t understand the value of what they own. That makes it difficult to value used process and packaging equipment,” says Matt Hicks, COO, Federal Equipment, a supplier of used process and packaging equipment. “Online marketplaces that try to empower sellers and help them succeed in maximizing the value of their assets are often confusing. For this reason, it is important to work with someone who understands the value of equipment and can help determine the ways to get the best returns.”

Hicks continues, “On the other hand, online marketplaces for laboratory equipment can be very effective because many systems are used interchangeably throughout pharmaceutical facilities, and there is a steady demand for laboratory equipment.”

The best place to get the highest dollar for equipment is on the secondary market. Auctioning your equipment will get you less because dealers will buy high-value items in auctions at prices that are a fraction of what the equipment is worth. If you’re in a liquidation or demolition scenario, disposing of your equipment may end up costing you money.

Unfortunately, by the time you get around to closing the facility, most plants are running on a skeleton crew. For this reason, many companies hire an outside firm to inventory the equipment, appraise its value, help find the most appropriate sales channels, and move the equipment out. Even a desk appraisal can be a very valuable piece of information. If you do go the outsourced route, you will want a vendor that will provide project management, communicate regularly throughout the process, and take you all the way to the end. Our anonymous source continues, “Effective communications between teams is essential. Make sure everyone has the same inventory lists and facility maps. Cross reference and index those on a daily basis. Meet with your team every shift so everyone understands what is going out the door, when it will be picked up, and who will be picking it up.”

Avoid Careless Redeployment
When you’ve been asked to close a facility, the idea of redeploying equipment may seem like a good one. The equipment has been in your facility, your team has maintained and validated it, and moving the equipment from one facility to another can save you the hassle of finding a buyer. To do so correctly, you need to give yourself and your company sufficient time to take advantage of redeployment. In most cases, that requires 60 to 90 days of internal marketing.

On the downside, redeploying assets means you will incur the cost of crating and shipping the equipment. For example, crating a high-performance liquid chromatography or nuclear magnetic resonance unit can cost between $5,000 and $15,000. Removing equipment that has been engineered into a plant can easily run into the six figures.

According to GoIndustry DoveBid’s Small, “We recommend that equipment already be on a requisition list 90 days before it is redeployed and suggest coming up with criteria for redeployment. That way you don’t have divisions jostling for assets because they are suddenly available.”

Minimize Devastating Errors
Imagine you’ve closed down your facility, leaving it “broom swept,” and ready for the next occupants. You move on to your next job. A few months go by, then a major news program runs an investigative report about children recycling e-waste in India. Items featured in that story are labeled with your company’s name. Welcome to a public relations nightmare that could have been avoided.

Companies often run afoul of Hazardous Materials Regulations when employees unfamiliar with these regulations start selling equipment or start transporting materials from one facility to another. Your facility closing plan must include a process for decontamination and decommissioning to prevent devastating errors. The plan must include validation and documentation that shows the equipment and facilities have been decontaminated according to local and federal guidelines. That information needs to accompany the equipment and remain on file.

“Decommissioning and decontaminating laboratory equipment involves conforming to all regulatory requirements,” says EquipNet’s Smith. “You want a robust audit trail to prove you’ve been compliant when it comes to decontamination and you’ve disposed of items in an environmentally responsible way. If you don’t, you could face prosecution or substantial fines.” In addition, you’ll need to include the proper disclaimers to avoid exposure to lawsuits if the equipment buyer suffers an injury while using machines you have sold.

Maximize Returns
The used equipment industry is booming, and market pricing is strong. Laboratory and analytical equipment, in particular, is one of the fastest-growing categories of preowned equipment. There has been an increase in B2B asset purchases with the largest pharma companies buying each other’s assets. One reason is they know the equipment comes certified and validated. If you’re a start-up, buying preowned equipment may make it easier to reach profitability faster.