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Should two small companies share manufacturing space?

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Offices & Operations mentor Charles J. Bodenstab responds to the following question from an inc.com user:
Is it a good idea to have two small companies share the same manufacturing space? What are the pitfalls? Our two companies complement each other well. We can offer more services, share resources, and get sales from one another. Our companies would have two separate addresses and different offices.

Charles J. Bodenstab's response:
Clearly, it is always desirable anytime you can share expenses and eliminate redundancy within operations that have a common ownership. What is not clear to me, however, is whether you intend to share only the manufacturing building while maintaining totally separate equipment and personnel, or if you are going to be more ambitious and go for an even bigger payoff by sharing equipment, supervision, and services.

If you are only going to share the physical space, then there shouldn't be many problems other than the typical annoyances of people griping about matters such as housekeeping.

If you pursue the latter opportunity, the potential payoff is more substantial, but so are the potential problems. In that case, I would offer this advice:

  • Beware of commingling high-quality, premium-priced products with low-end items. Each product line can adversely impact another.
  • Make sure you think through the mechanism for cost accounting. People may start to focus on perceived inequities after a while, and their discontent will adversely affect morale and motivation.
  • Make responsibilities clear. Spell them out in writing. You may want to create an arbitration committee made up of about two or three people from each company as well as an independent facilitator to handle potential disagreements.
  • Seek legal counsel who can offer professional analysis into potential liability issues.

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