Before you locate your next distribution center or warehouse, you will examine various site selection criteria. Area Development's 24th Annual Corporate Survey ranks site selection factors that corporate managers say are important or very important in their location analyses. This year more than 81 percent of respondents said inbound-outbound shipping costs were very important or important in their decisions (Figure 1), making those costs the tenth most influential site selection factor in 2009.
Future implications of inbound-outbound shipping costs on distribution networks should concern corporate managers. The volatility of fuel costs, accessibility of other modes of transportation, and major legislation currently being debated have given corporate managers a new list of worries. But building a robust distribution network can alleviate future problems.
To figure out what markets you will serve
can be as easy as looking at a map or as complicated as hiring a site
selection consultant to conduct a service area study. The easy route
involves taking the time to call and discuss issues that other
distribution facilities in the area have. Ask them why they are there,
about the transportation infrastructure, and if they are meeting cost
and service targets set before they located to the area.
Don't worry about reaching out to other distribution facilities in the
area. There are plenty of opportunities to speak with representatives
from those sites. Begin a discussion on a social networking platform
like LinkedIn. Attend local professional meetings hosted by the Society
of Industrial and Office Realtors (SIOR), the Warehousing Education and
Research Council (WERC), Commercial Real Estate Development Association
(NAIOP), or the Council of Supply Chain Management Professionals
(CSCMP). One reason to attend local meetings and conferences,
especially in the logistics and supply chain field, is to discover best
practices or issues and concerns that could affect your distribution
facility. You can also measure your company against competitors, an
opportunity to snoop around without really snooping.
Keep your transportation options open. Look for sites that provide a mix of options, from air and rail to truck and ocean shipping. Customer business strategies change as fast as teenage trends. If your customer changes plans a year after you begin operations and expects you to deliver to another region in the country or to another country altogether, can you receive and send shipments using a combination of shipping methods? And don't forget about expediting orders. While FedEx and UPS can support your strategy, your total cost analysis must reflect the cost of those services. Being located near a combined heavy weight and small package air hub can make a difference.
Evaluate any long-term plans that could alter the mix of products and how that will affect shipping methods and service delivery. And remember that transportation typically comprises more than 50 percent of a company's supply chain costs. Labor costs consume around 17 percent, while rent, taxes, and maintenance typically encompass less than 10 percent of supply chain costs (Figure 2).
Consider your company's growth potential, as well as which customers will grow with the company. Will the business grow or decline over the next five years? Will it expand or reduce overseas operations? Having several small distribution facilities will speed delivery to customers and lower fuel and trucking costs, but it will be harder to manage inventory and consolidate deliveries if something changes.
At the same time, don't succumb to the one-size-fits-all approach. If your company provides a range of products and services, locating a large cold storage facility in a central location to support many customers may make sense. The larger facility will have higher costs associated with transportation - longer routes, slower delivery, and higher fuel usage - but lower costs when considering other factors such as work force training, lower inventory levels, and ability to consolidate orders. Be sure to examine total cost when analyzing your network cost.
"Logistics Cost, Labor, and Love"
Your distribution network must be flexible enough to improvise, adapt, and overcome changes in this brave new world of constant flux. Understanding that site selection decisions are based on cost service trade-offs and how those trade-offs affect your overall network flow and total cost, will help you make smarter decisions.
There is no holy grail in site selection. However, careful consideration of the total network cost, energy availability, incentives, and infrastructure needs, along with overall network design, will enhance your search for the right site for your next distribution facility.
"Location, location, location" used to determine the quality of a commercial real estate site. Today the three L's - "logistics cost, labor, and love" - are key factors. Logistics cost and labor are major elements in the total cost of your network. The love comes from local and state communities that must embrace your company's investment in the community. Without a genuine desire for your investment, the local market may make operating your facility difficult, or more expensive if there are no incentives.