Growth is the objective for most businesses. And while you plan for that growth, you need to consider, among other factors, whether you have the space to expand your business. Strategic facility planning helps organizations set the strategic direction for all further planning activities.
What is Strategic Facility Planning?
Strategic facility planning (SFP) is a structured planning process that helps organizations align their short and long-term facility plans with their business plans. The SFP process typically includes the entire real estate (network or facility) portfolio, although it can also focus on a single aspect of the plan. It is a data-driven, defensible, high-level look at what facilities and strategic solutions are needed for an organization to achieve its business goals.
Strategic facility planning is the first phase of the overarching facility planning process.
The facility planning process includes three steps:
- Strategic facility planning (SFP): a two-to-ten-year plan that defines the facility needs, at a high level, for an organization to successfully achieve their business plan.
- Master or campus planning (MP): a physical plan that organizes a site or campus, the facility and infrastructure that is needed to implement the SFP.
- Tactical facility planning: the execution of the master plan with detailed programming and conceptual design solutions. Tactical planning also includes the day-to-day workspace planning that is needed for an organization to operate.
Many organizations use “master plan” as an all-encompassing term that groups together the strategic facility plan and master plan. But there are differences between the two and it’s important to recognize them as separate steps in the planning process.
The SFP process answers questions and identifies the facility requirements needed to meet your short and long-term goals. With the right people and data, the SFP process can quickly and accurately look at an organization’s facility demands, gaps, and help guide an organization toward a more efficient and cost-effective facility strategy to inform the development of a full master plan.
Translating the business plan to a facility plan
The first objective of strategic facility planning is to clearly define the facility implications of your business plan for both the near and long term. For most SFPs a near-term planning horizon is 3-5 years, and the long term is 6-10+ years.
For some organizations, the business plan is simple. They want to grow by a certain percent per year with accompanying revenue, expenses, and profit goals. For others, the business plan also includes strategies to respond to changing markets or demographics, a change in its distribution network, the adoption of new technologies, or perhaps potential mergers and acquisitions. For a complex organization, the list of business drivers can be quite extensive.
Given that the cost of facilities is predictably the second largest expense line item for most organizations (payroll is the number one expense), it would serve any organization well to not only have a robust business plan but to also have a dynamic strategic facility plan to understand and predict its facility expenses as the business changes.
Kicking off the strategic facility plan process
The SFP kick-off meeting must focus on communicating the business goals, assumptions to be made, and questions that need to be answered.
The SFP process begins with a review of the business plan. Some of the most important points to discuss include goals for growth, pipeline of products that will trigger that growth, as well as any other business drivers, growth initiatives and/or operational changes that are envisioned for the planning horizon (typically 3-10 years). The goal is to get a comprehensive picture of the business and where you want to take it in as much detail as necessary to be able to lay out the facility implications.
Who is involved in this initial SFP meeting? C-suite executives and directors/managers that can speak to the organization’s current and future business and operations, and those empowered to make appropriate business, operations, and facility assumptions.
Once you have laid out your organization’s business and operational plans, the next step is to clearly define what assumptions are being made about the facilities and operations. For example, an organization with a large manufacturing operation may do all their quality control testing activities in-house. If the organization is planning to grow manufacturing, it stands to reason that the supporting testing operations may also need to grow, unless excess testing capacity currently exists (more on that later).
Alternatively, these types of testing services can be outsourced. So, what is the assumption for the future? Testing in-house or outsourced? Does a deeper study need to be triggered to compare the costs? During the kick-off meeting, develop a list of assumptions, determine if those assumptions need to be challenged, and identify potential follow-up actions. This will ultimately inform the strategic facility plan.
Here is the key – as the SFP is revisited annually (ideally), these assumptions may need to change. And that is OK. Having a comprehensive list of the assumptions at the forefront of the SFP deliverable is critical to understanding the SFP findings and recommendations, and it allows the SFP to evolve and change with changes to the business.
SFP answers strategic questions
Given that facilities are a major cost item on the expense side of the P&L, many organizations leverage the SFP process to answer strategic questions about their growth.
- For example, if an organization has an urgent need to add expand its product line to serve a new market sector, they may use the SFP process to help them answer the question, “What is the quickest, most cost-effective way to bring on new warehouse space?”
- In the case of our manufacturing/testing example, the client may have limited lab capacity so the question to be answered might be, “How much can we increase our manufacturing before we need new lab space?” typically followed by, “How much additional lab space is needed to support the 10-year manufacturing demand?”
- With the rapid global spread of COVID-19, many organizations are now asking the question, “How do I need to adjust my facilities for a pandemic?”
Identifying the facility demand for the entire portfolio
While organizations often focus on the revenue-producing part of their business and facilities (i.e., manufacturing), a good strategic facility plan should evaluate the entire real estate and space portfolio to identify the entire facility demand implicated by the business plan. To continue building on our example from above, an increase in manufacturing will likely trigger the need for additional warehouse space and even offices—beyond those additional testing labs.
Developing a baseline for SFP with data-driven analytics
While the SFP process identifies what facilities are needed for the organization to meet its goals and objectives of the business plan, this can only start with a comprehensive understanding of your current facilities’ capacity and utilization. Work with the day-to-day operational managers to understand how well the existing facilities are operating and where opportunities and limitations currently exist for adding capacity and/or increasing utilization. In other words, you need to know what you have before you can define what you need.
In the case where an organization is completely new and has no existing facilities, CRB leverages benchmarks from other similar facilities to make assumptions regarding space utilization, capacity, and facility demand. In a nutshell, the SFP process lays out the facility supply, facility demand, and facility gaps for the organization for the specified planning horizon.
Leverage the organization’s space management data
In addition to talking with managers and compiling operational data, leverage a space management tool for SFP to establish the facility supply (baseline). Most organizations that have more than 250,000 square feet of facility space have adopted (and are using for tactical space planning) an Integrative Workplace Management System or IWMS. If populated correctly, this database contains helpful information for every room in every building. Most importantly, this provides quick access to floor plans, square footage, and space utilization. With this database in hand, you can quickly assess your organization’s baseline supply for the SFP and add attributes and additional data points as needed for establishing the facility gaps.
Understanding utilization and capacity of existing facilities is key
The next step is to develop a deeper understanding of both the utilization and capacity of the existing facilities and develop planning metrics that capture this information. This is where SFP can help an organization develop the most appropriate approach given the nature of the space functions and the data available. Each space function will likely have a different strategy for establishing capacity, and corresponding metrics once the current utilization is understood. Lab capacity may be driven by samples, equipment, or even headcount. The capacity of a warehouse, on the other hand, will be driven by storage pallets; and offices will most likely be organized by headcount and/or seats.
The SFP must identify, for each space function, the existing utilization and capacity as well as future potential capacity if the utilization strategy is changed. Existing and future utilization may require a deeper dive into the operations to identify specific strategies to improve efficiency and increase capacity – thus addressing the facility demand and minimizing the gaps. For example, an existing manufacturing floor or warehouse may not be efficiently organized from an equipment layout and operational flow perspective. It is not uncommon for CRB to assist companies to “re-work” their production and warehouse spaces to increase capacity and defer spending capital on new facilities.
Identifying and communicating the facility gaps
Once you determine the baseline facility supply and forecast the facility demand, you can develop the gap analysis. The facility gap analysis gets the most attention in the SFP process because it provides the unmet facility demand data. With a robust data-driven SFP process, these gaps are very defensible, providing leverage to make strategic decisions about future growth and capital planning. However, these gaps are identified based on the many assumptions you’ve made about your organization’s business drivers and operations.
Gap Analysis Chart
Re-stacking strategies allowed the square footage of the warehouse to reduce from 33 percent of the total space portfolio to 11 percent.
Case in point: CRB provided a strategic facility plan for a growing biopharma client. Our team worked with the client’s leadership to translate projected manufacturing forecasts to space and facility demands. Three major demand drivers impacted the facility gap analysis:
- Production and equipment forecasts
- Supply chain pallet forecasts
- Head-count projections
Reducing the gap by optimizing warehouse space
CRB determined that additional space was required to accommodate manufacturing growth. Being located adjacent to the warehouse created an opportunity to leverage an underutilized space for this growth. Re-stacking strategies allowed the square footage of the warehouse to reduce from 33 percent of the total space portfolio to 11 percent. This provided enough space for manufacturing to add the equipment needed to meet the five-year production forecasts.
Revisiting assumptions to minimize the gaps
When the facility gaps are large, you need to revisit the assumptions made about operations and utilization. In our testing lab example from above, the lab may currently operate from 8 am – 5 pm, five days a week. Because this is the current work culture, it was likely the assumption for the SFP analysis. But what happens if a second shift is added for lab testing? Or even a third shift? Assuming this is a doable strategy and aligns with the manufacturing schedule, it could potentially reduce the testing lab space demand considerably. In this case, the organization may also explore potential outsourcing of select lab tests to reduce in-house lab demand.
The most common assumptions to be re-visited to help minimize the facility/space gaps include the following:
- Shift work
- Headcount reduction/automation
- Operations improvements (more efficient equipment and/or space layout)
- Shared and multi-use spaces
- Shared instead of dedicated office seats
Developing strategic facility options and scenarios
The final step in the SFP process is to lay out all the credible strategic facility solutions to address the facility gaps. You may develop solutions to correspond to different operational assumptions. There may also be a series of options that align with various real estate opportunities. Clearly define each option, and identify the pros and cons. Additionally, develop and consider both capital and operational costs.
During this process we develop and consider both capital and operational costs.
Example heat map from a gene therapy client's SFP
Once all the quantitative data about each option is defined, it is important to add any qualitative criteria that would influence the viability and success of the strategic planning options. For example, a facility planning option may work great from a space layout perspective, but the implementation of it may significantly disrupt current operations, making that option very costly. Supply chain and regulatory impacts must also be considered as appropriate. Also, worth noting are impacts to employees. When considering real estate options, for example, employees can be significantly affected if a new facility on a campus is out of a comfortable walking range from their current workspace, or if a new real estate option extends their commute distance.
Once you have identified all the qualitative and qualitative evaluation criteria, you can score and weigh the options. A heat map is a valuable tool to leverage for evaluating and comparing strategic planning options and presenting them to executives and decision-makers.
The SFP process is a thoughtful, robust, and necessary step for any organization whose business is growing or changing in some fashion. Whether you are a manufacturer looking to expand into new markets, or a university looking to change the way students learn on a campus, SFP is a necessary first step in the facility planning process.
Are you ready to better understand your business implications for your facility? Our Consulting Team is here to help our clients with space utilization, reducing capital cost, and more.