Logistics, Warehousing & Distribution

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3PL Site Selection

30 Jun, 2004

By: Kristian D. Bjorson
Be Strategic, Diverse and Flexible

The low hanging fruit is gone. Tactical operational improvements are limited. Customer demands, global sourcing and limited driver supply are contributing to rising transportation costs. Given the current distribution climate, site selection must positively impact customer service, operating profitability, future growth, and employment potential. Selecting the appropriate site for distribution centers has now become mission-critical to the survival of your client’s business. Use site selection as a weapon to deliver your clients up to a 25 percent cost reduction or profit enhancement combined with a less than two-year payback. Easier said than done…

Your client’s management team will look to you to make a supply chain contribution to their bottom line immediately, perhaps this quarter or the next. They will be searching for tangible results to highlight successes for the public and enhance the company’s value — and you may be their ace in the hole. If they are, you have an opportunity to make a difference. Jump on these real-life tips and practical ideas on how to organize and manage a site selection process to achieve optimal results in the shortest possible time frame.

Listen, Learn, Listen.

Location, location, location – your real estate? Logistics, logistics, logistics – your core business? Don’t hurt yourself patting yourself on the back. Stop talking about yourself and listen. Your client has a supply chain problem. Find it and fix it before someone else does. The best way to accomplish this is by asking the right questions, listening and conducting a thorough logistical audit. Meticulously survey their present situation and anticipated needs to understand changes in cycle times, product mix, or supply sources, as well as increases in operating costs. Provide an objective analysis of their current distribution operations, identify challenges, suggest options for change, and prepare a benchmark for future comparison. Benchmarking their performance and developing metrics is not only a “survival of the fittest” tactic, but it also enables you to determine how their operations and financials match up against top competitors in their industry and “best of class” performers globally.

Look at their entire supply chain to develop a clear understanding of how this site selection process may help maintain and expand their business – top and bottom lines. Seek access to interview their top customers and suppliers for feedback regarding the service and cost components critical to any effective distribution network. By collecting and analyzing the overall supply-chain costs from a representative period, you will be able to illustrate how their customers and suppliers, future sales projections, or market trends may affect their network.

Whether it is on the back of a napkin or through a computer model, you must understand the interdependence between all cost and service factors in order to develop a site selection strategy capable of handling projected demand and flexible enough to react to changing business conditions. For example, you may need eight warehouses to serve the U.S. population at a required lead time of one and a half days, and an average distance of 200 miles. If this lead time relaxes to two days, you may be able to handle this customer service level from only three warehouses, with an expectation that the decrease in inventory and distribution operation costs will outweigh the increase in transportation costs. In general, conducting a sensitivity study between costs and service will allow you to compare all of the ways you might be able to optimize not just one targeted geographical area but their entire distribution network.

Aggressively take the lead to improve productivity through better use of space and work scheduling. Is there a better way to do things? Constantly challenge yourself to find answers to critical questions regarding facility planning, design, and operations. Prior to moving down any site selection path, you must present the client with a facility strategy that maximizes the ROI in labor, material-handling equipment and information systems. Quantify the benefit of each cost in terms of time, money and effort. Perform value engineering to ensure economic, safety, and flexibility issues are constantly being met. Working from the inside out will enable you to determine the accurate square footage to seek in the site selection process.

Prepare a business profile to help you solicit tax abatements and incentives from various economic development councils. Develop a realistic timetable and a communications program for all team members to set the foundation for a successful project. These initial steps will help you organize your site selection value proposition and deliverables to their corporate needs, wants, and plans.

Elimination with Diversity and Accountability

Get shareholder and stakeholder support of your client’s critical project drivers prior to kicking off your site selection efforts. As you start to identify potential geographic locations from your previous analysis, you must conduct working client meetings to determine strategy and location objectives within the targeted areas.

A “high-level screen” may be the best way to focus your efforts. Determine three to five criteria essential to the success of the project, called threshold criteria that each city must meet. Discuss these criteria with your client’s top decision-makers and obtain consensus. A process of elimination will then remove cities that do not meet the threshold criteria. The high-level screen should produce a minimum of six cities in three states for consideration in the site selection phase.

Develop an objective, quantitative decision model, which accounts for both quantitative and qualitative advantages and tradeoffs. Research and analyze specific criteria related to labor force, distribution climate, and operating costs. By looking beyond the off-the-shelf labor information, you will be able to quickly focus on relevant correlations to your client — such as the relationship between a diverse workforce and unionization, high school graduate population and warehouse worker density, or the relationship between a handicapped workforce and public transportation. Your client will look for you to be an effective leader of a diverse, productive and cost-effective workforce. Regarding the distribution-climate criteria, you must account for changes in transportation infrastructure, competitor facilities, and relevant community acceptance attributes. The operating cost profile will be driven by the following major categories: transportation, labor, real estate, and tax structures. At this point, all of these data points can be gathered and tailored to your needs to develop a quantitative and qualitative analysis that weights, ranks, and plots the data in a report format that is easy to read. A decision matrix of advantages and tradeoffs will provide additional life to the results as well as help you build educated decision-making consensus on relevant information to arrive at a short list of two or three cities.

Roll up your sleeves, turn over every stone, and prevent fatal mistakes by taking city visits to gain firsthand experience of the primary economic and community criteria. Consider setting up interviews with other corporate distribution operations to verify comparative labor data on hiring, turnover, wage scales and incentives as well as an overall comfort level for the distribution climate. Define all potential real estate scenarios to understand each city’s issues, weaknesses, and strengths, as well as windows of opportunity created by current real estate market conditions and expected changes. A real estate spreadsheet will help your client evaluate each city by the availability, cost, and accessibility of potential distribution centers. Review recent tax abatement and incentive allocations of comparable distribution center projects prior to meeting with each location’s economic development groups to determine the overall incentive value for your project. At the conclusion of the city tour, you will be in a position to make a confident recommendation of the primary city / site and back-up, supported by a substantive summary of objective and subjective information.

Leverage Flexible Implementation

Don’t just talk about it; make it happen by converting recommendations into results. A detailed site selection process puts your team in a position to make a winning location decision for your client. Simply locking and loading a long-term real estate deal is not the answer. Maintain competitive leverage by evaluating multiple real estate alternatives through a formal request for proposal process. Set the stage for flexibility in the written request for proposal documentation with various options for contraction, termination, renewal, expansion, purchase, etc. Use a third party negotiating position to work every angle of the deal until the contract ink is dry. Make a bottom line difference with your ability to control the balance of the implementation process by maintaining competitive leverage in the facility design / construction, material handling and information systems procurement.

True project success will be defined by carefully matching the framework of this site selection process with the appropriate compliment of internal, client and external resources to yield world-class, client-tailored results.

 

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