Today’s environment is giving US manufacturers even more reasons to reassess their footprint strategies. For some, localization of production may now seem increasingly attractive—particularly amid rising volatility in tariff and trade policy, evolving incentives for domestic manufacturing, and realigning global trade corridors (Exhibit 1).
Manufacturers know, however, that building new factories—and doing so quickly—can be incredibly complex. More worrisome is that in many organizations, particularly in the United States, factory-building skills seem to have atrophied as leaders came to rely more on acquisitions and network consolidation to fuel growth. As a result, it is possible, even in a large company, for the chief manufacturing officer to have never overseen the expansion of an existing factory—let alone the development of an entirely new “greenfield” site. The construction industry’s capacity for new factory construction is also constrained, especially by the demand for skilled workers.
The sheer scale of the capacity gap is daunting even before confronting the very real risks that major projects face, from spiraling labor costs to vulnerable supply chains. There’s no single technology or template that manufacturers can deploy in response. Instead, to close the gap, manufacturing leaders need an integrated approach to factory building, one that encompasses thoughtful factory design, a reassessment of the supply chain, and effective construction management.
This article will show how a few pioneers followed this path to achieve real turnarounds on high-stakes factory projects—including 20 percent faster completion of a multibillion-dollar semiconductor fab and double-digit cost reductions and output increases for a consumer electronics maker.
The need for speed
Heightened competition for capital under current market conditions means it’s more critical than ever for manufacturers to deliver major capital projects on time and on budget—a goal that less than half of all projects meet. McKinsey research shows that better management of investment in capital projects directly correlates with higher pretax ROIC, with a typical value at stake of 20 to 30 percent in capital expenditure and a potential improvement of between 2 and 4 percent in ROIC across a project portfolio.
Yet capital deployment outcomes remain consistently poor. Our research finds that the average capital project runs approximately 60 percent over schedule and more than 70 percent over budget (Exhibit 2). McKinsey analysis from 2022, covering more than 500 projects worldwide since 2000, found that for the average large capital project, the cost overruns amounted to $1.3 billion.
Factories on-line and in-full production
An integrated methodology for greenfield development has allowed a few companies across a range of industries and geographies to achieve the unthinkable: new capacity that is well positioned to achieve its planned investment returns right from the start.
A blueprint for revamping factory floor design
The first step is undertaking a meticulous factory design process that seeks to ensure consistent flow of production, with adequate redundancy in capital assets. That was the starting point for a multinational consumer electronics manufacturer, which sought to expand capacity to a site that was higher cost than its traditional low-cost-country base.
The manufacturer’s leaders knew that higher labor costs in the new location would require the company to rethink the entire value chain for the new plant—and with it, core production processes. Executives recognized that a greenfield development offered a unique chance to invest in Industry 4.0 technologies, maximizing ROI and minimizing production disruptions (Exhibit 3). Accordingly, they prioritized a series of Industry 4.0 use cases that showed high potential for a very different production line, with heavier use of robotics and other forms of automation. The changes doubled the new plant’s throughput while reducing cost per unit by 30 to 40 percent.
An even more advanced application of Industry 4.0 that many companies have already deployed is to build a digital twin of the future production line, as a medical-products company did in designing a new plant for its high-mix, high-volume product portfolio. Leveraging a digital twin allowed the company to optimize the new factory’s layout by simulating future production so that engineers could build in additional flexibility and minimize the impact of frequent changeovers. These sorts of changes helped the plant pay back its investment within two years, with a 20 percent increase in overall equipment effectiveness and gross margin increases of almost 50 percent.
Preparing the supply chain
Advanced technology alone can only achieve so much. Too often, new factories run into a highly analog problem: suppliers that can’t keep up, whether because of difficult logistics, their own capacity constraints, or broader issues in the supply relationship.
To mitigate these risks for a new assembly site, an aerospace and defense manufacturer developed an in-depth analysis that combined factors such as suppliers’ available production capacity, geographic footprint, and applicable transportation modes and routes with forecasts of component demand at both the market and individual-part levels. The company used the insights from this analysis to develop its supplier strategy, identifying where existing suppliers could meet demand and where additional suppliers were needed.
Improved procurement capabilities can have a significant effect. For a North American semiconductor fab budgeted at more than $10 billion, leaders assembled a procurement task force to oversee and expedite purchasing across more than 300 discrete “packages” of highly specialized work. By taking relatively straightforward steps, such as using common dashboards for greater procurement transparency, assembling rigorous benchmarking standards, and building rigorous accountability for identifying and evaluating new vendor candidates, the fab more than tripled the number of completed RFPs.
With the procurement schedule now in sync with the project’s aggressive construction schedule, procurement leaders could identify and address looming resource gaps before they caused delays. The fab also improved the procurement team’s negotiation practices, which further reduced cost and schedule risk so that the entire project could stay on plan.
Managing construction
Because timely project delivery also depends on effective design and construction management, leaders will need a robust contracting strategy that seeks risk-sharing opportunities with vendors and builds incentives for punctual completion. In parallel, companies can also define applicable governance models, establish a construction stage-gate process, and start addressing one of the largest risks to major construction projects: skilled-labor availability.
Well before starting its North American fab project, the semiconductor manufacturer revisited and revamped its contracting strategies, systematically building new capabilities so that it could better understand its contractors’ costs and constraints. The insights helped the fab’s leaders adopt a new negotiation stance, which ultimately led to a genuine partnership with the fab’s general contractor—along with a more intelligent allocation of risk and about a one-quarter reduction in bid price.
At the same time, a team of analysts developed an integrated trade labor strategy to identify top labor risks and better manage talent scarcity. A detailed assessment reviewed how labor needs would evolve for every trade over the project’s duration, and for each area and building in the sprawling facility. Next, the team identified the labor needs of the major trade contractors, ranking potential vendors by their capacity, proximity to the site, and potential for long-term relationships. Finally, for the largest packages of work, the team evaluated the most likely bidders, with recommendations to split up some packages so that more contractors would be able to work in parallel on-site. These steps saved more than $50 million.
The fab’s careful use of advanced construction technologies, including the latest modular-building techniques and generative-scheduling and performance transparency tools, helped it mitigate other risks. Leaders used a generative-scheduling model to test a range of alternative construction program designs—such as resequencing the structural packages or reallocating labor to boost utilization. The model identified more than 90 optimization opportunities that together cut timelines and total project costs by more than 10 percent.
This use of technology has also proven successful for an automotive OEM in constructing a new battery facility. Leaders explored “what if” scenarios and opportunities to optimize the tooling installation schedule, which allowed the company to shave more than a month from its delivery schedule and saved more than $40 million.
Asking the right questions
Project leaders at each of these companies undertook a strategic review of four essential issues to guide their greenfield expansion strategy.
One of the primary considerations was site flexibility: how much leeway the company has in choosing the greenfield site. For example, changing a company’s geographic footprint can have a dramatic effect on its suppliers’ capacity to support the expanded business. Some companies face additional location constraints due to specialized transportation or skill requirements, customer proximity, or the necessity of being near other plants. Understanding the risks to supply chain and workforce availability is crucial when selecting a site and can involve difficult trade-offs. One high-complexity manufacturing company’s supply chain requirements left it little choice but to enter markets that were already short on skilled workers. Despite the location’s other benefits, the company had to develop additional plans to attract and retain talent.
Another critical factor is timeline: the time required to meet the production schedule and potential opportunities for investment to accelerate the completion date. Identifying where investments can expedite processes is vital. Each region and industry has unique requirements, and companies should understand the standard timelines and which actions or investments could help accelerate them. For example, if equipment production can be accelerated, could the future workforce begin training on new processes earlier? Does the company have sufficient training capacity, and are there other sites with experienced workers who can provide initial leadership? The complex manufacturer found that even with investment, “time to talent” remained challenging, delaying the site’s ability to operate at full capacity.
Third, companies should consider new processes and technology. Up-front investments in automation and robotics not only improve performance but also attract a future-ready workforce. With Industry 4.0 advances, some manufacturers are already implementing two-way supplier connectivity by fitting lines with sensors and deploying digital work instructions. The complex manufacturer found ways to implement technologies that could assist the workforce without requiring extensive process redesign and certification.
Last, leaders should continue looking for ways to transform existing production during greenfield design and development. At least initially, new facilities may not be more efficient than current sites. Leaders should therefore keep exploring potential capacity improvements at existing facilities even as greenfield expansion is underway. The complex manufacturing company, for instance, wasn’t projected to be fully operational with its greenfield facility for over three years. To meet growing demand, it had to find efficiencies in its current locations by continually reexamining equipment utilization, staffing, and overall efficiency metrics.
By addressing these issues, companies can effectively shape their greenfield expansion strategy to minimize risks and maximize operational efficiency.
To get started, manufacturing leaders can take three actions to lay the groundwork for a more effective capacity-expansion strategy:
- Conduct a thorough review of the organization’s current infrastructure and identify requirements for facilitating a production ramp-up.
- Evaluate the organization’s current readiness in critical areas, including production process, supply chains, labor strategy, and budget management, so that gaps can be filled quickly.
- Learn from other organizations that have successfully implemented similar scale-ups to gather insights and learn from their experiences and challenges.
By following these steps, companies can effectively navigate the complexities of greenfield expansions and set themselves up for success.
