Consolidation – A Strategic Path to Optimization and Efficiency

Consolidation (of production and/or warehousing) is one of the most practical ways to approach this question. It does not automatically mean "everything in one location" – it can be a merger of selected activities, a change in the roles of individual locations (e.g. from the production plant to the final assembly and distribution), or the transition to a model of a central node supplemented by smaller satellites. The common goal is to simplify topology, eliminate duplication, and improve the flow of material and information across the company.

The impulses for consolidation may differ, often include growth and the need to increase capacity, pressure on fixed and variable costs, shortages of qualified labor, portfolio changes, post acquisition integration or ESG goals. In practice, one thing is often true – a fragmented network of operations increases the complexity to manage operations, complicates planning, reduces the use of technology and workforce capacity, and creates hidden costs that are not visible at first glance in the financial results.

For warehouses, the effect of consolidation is usually the fastest to measure. The operation of one well-designed and utilized warehouse is usually more advantageous in terms of unit handling costs than several smaller warehouses serving the same market. More locations mean more transports, more loading and unloading, higher planning requirements and a higher risk of unbalanced stocks (overstocks in some places, shortages in others). Consolidation therefore typically brings economies of scale, simplified logistics, and often reduced inventory levels through centralized inventory management. In addition, it can also have a positive impact on the carbon footprint, in the most practical way – by reducing unnecessary transportation and making better use of transport capacity.

In production, consolidation is usually more complex and requires longer and more demanding preparation. Technology transfers face technical constraints (energy and media connections, construction readiness, safety and operator qualifications), quality and validation requirements (especially in regulated industries) and the reality of older production facilities that may lack complete documentation. But this is not an "unsolvable" discipline – rather, it is a topic that requires consistent planning, a realistic timeline, and clearly managed risks before anything physically moves.

Where to start?

The first step of a consolidation project should be a thorough analysis of current operations and processes – to preserve what works and improve what doesn't. It is necessary to map how production and logistics are carried out in current locations: material flows on-site, capacities and use of production halls and warehouses, inventory levels, machine performance, workforce utilization, etc. The aim is to identify bottlenecks that hamper current operations and identify opportunities for improvement. Without a detailed understanding of current operations, it is always risky to propose significant changes that have a major impact on the functioning of the company.

High-quality, data-driven analysis also helps determine what changes consolidation must bring – e.g. which capacities need to be increased, which processes need to be simplified or automated, and what volume of production and storage the new consolidated center should handle. In the event of changes in the supply chain or the setting of delivery conditions, we always recommend revising the existing VAT and customs treatment so that it is correctly set up in the future. If changes in the supply chain concern intra-group relationships, it is also crucial to consider the possible impacts on transfer pricing. These two areas tend to be overlooked and the Financial Administration is currently focusing on them.

Another crucial decision-making point is automation and robotization – a topic that is no longer reserved for the biggest market players, but is increasingly relevant for medium-sized and, in some cases, even smaller entities. Deciding on the degree of automation (e.g. automated warehouse systems, robotization of production, AGV technology in warehouses, etc.) is one of the strategic steps that should be addressed when designing consolidation. The basis for this assessment is again an analysis of current operations and a forecast of the company’s future growth  – automation makes sense especially where current processes require a lot of manual work, or where the planned volume of logistics operations exceeds the effective capacity of manual processes. In the field of automation, the Czech Republic offers public support in the form of grants and investment incentives. When using modern AI technologies in warehouses, it is also necessary to proceed in accordance with the AI Act, which is gradually introducing new rules. Our colleagues from the tax and legal departments will be happy to help you with these areas.

What not to forget?

Does consolidation make sense for us?

This is the question where the discussion starts, and it usually cannot be answered in a single management meeting. Whatever the initial impulse, in addition to external influences, the strategic intention and vision of the owners and top management remain crucial. In practice, we therefore often proceed in the form of scenarios, consolidation is often one of the options in addition to the modernization of existing locations, changing the roles of operations, combining with external capacity or modifying the business model. The scenarios are further developed into additional sub-variants and analysed in order to make a decision that is sustainable and feasible in the long term.