It's one thing if your facility only houses your core operations. But if it must also serve as the primary driver of your warehousing and distribution efforts, your facility needs dramatically change.
Depending on how sophisticated your logistics processes and strategies are, proximity to the customers or warehouse facilities you must reach every day could limit your site options.
For executives charged with choosing facilities, your options expand if you can figure out how to get more from your logistics functions. The good news is that logistics technology is advancing, and much of the thinking associated with it is progressing just as quickly. Still, decision-makers must ask the right questions, access the right resources, and know how to recognize both.
"One of the things we've realized is that automation - not just in machinery but in systems and supply chains - has reduced the need for inventory, which takes up square footage, by as little as 20 percent and as much as 60 to 70 percent what it used to be," said Jim Ward, CEO of Grand Rapids, Michigan-based Supply Chain Solutions, a third-party logistics provider and supply chain consulting firm.
Plotting a Route
Kuna FoodService, a Dupo, Illinois-based food distribution company, needed to choose a new facility location in 2008, and was interested in property in and around its headquarters near St. Louis. But Kuna officials wanted to look at more than just the cost of the land, according to John Schuler, the company's general manager. They wanted to know how each location would affect distribution costs.
Kuna enlisted Direct Route, a software system developed by Appian Logistics, to solve the problem. Direct Route analyzed several prospective routing scenarios of the company's 22 trucks, which deliver to customers in Illinois and four adjacent states. The site with the best results was in Illinois, just outside St. Louis. By automating routes originating from that site, the company eliminated 15 percent of all routes, and saved $4,000 a month in the process.
The company purchased that site and began operating from its new, 90,000-square-foot facility in July 2008.
"We found out one site might be 20 miles out of the way, but maybe it's got a better path," Schuler said. "We had six sites we looked at to see how we could save costs."
The system even analyzed which routes would make it easier for trucks to use main lanes on interstates, and factored that into the calculated savings.
Need has driven better inventory management - especially given the poor economic climate - resulting in more choices when selecting facility sites, according to Ward at Supply Chain Solutions.
"What we're seeing working with manufacturing companies is that they're holding less inventory for a lot of reasons," Ward said. "They're trying to keep from having so much inventory, carrying costs, product changes - just the infrastructure and the cost around having the inventory sitting somewhere. But also the fact that today we want to buy this and tomorrow we want to buy something else, so you really need to build in the agility."
Companies are showing a preference for just enough on-site space to house their core inventory, Ward said. If a company's business is seasonal, or if inventory tends to fluctuate, companies usually opt for off-site warehousing.
"We've got a client right now that just got a deal with a major retailer, and they've got a one-time new product offering," Ward said. "They're going to have to uptick by five times their normal space."
Supply Chain Solutions is handling the short-term excess inventory at an Ontario, California, facility. When that need has been fulfilled, Ward said, it's likely that another customer will have a similar request.
Companies also want to make limited-time commitments to their facilities when they can. Interestingly, the faltering economy is working in favor of companies that need more flexibility and lower lease rates from their facilities. Since commercial real estate was overbuilt prior to the 2008 market meltdown, it's a buyer's market, and leasing agents are in no position to demand long-term agreements.
"Right now, strategically, you can get facilities with flex space in a shorter term at great rates," Ward said.
Supply Chain Solutions saw this market need several years ago, and invested in warehouses with multiple resources and services to handle clients' excess inventory in the event of an economic downturn. That business is booming.
But what will happen if companies downsize their core facilities with
the notion that warehousing companies can continue to accept the
inventory surplus, but a declining economy forces some of those
warehouses to close? The challenges of the past few years have helped
prepare warehousing companies for future economic turbulence.
"The last few years have created the ability for warehousing companies
to go up and down," Ward said.
One example is Brampton, Ontario-based Crownhill Packaging Ltd., a
warehousing and fulfillment company handling more than 15,000 products.
Crownhill has recently seen growth in utilization as customers seek to
maintain inventory space only for their most profitable products. As a
result, Crownhill opened a new facility in Waukegan, Illinois. The
50,000-square-foot center includes four loading docks and two
drive-through loading docks. The company is seeking to expand over the
next five years as demand for such services grows, according to Gary
Fox, Crownhill's managing director for the Waukegan facility.
"Our general philosophy is that we'll be our customers' warehouse per
se, so in a given scenario, we might have a customer who has 15 to 30
SKUs [stock-keeping units] that they need on a daily or weekly basis,"
Fox said. "Our customer can send to our system what their usage is for
the day, and what it will be for the following day, and our usage teams
will pull those items and will call them or have them available the
Lakeland, Florida-based Saddle Creek Corporation is a full-service
warehousing and transportation company that emphasizes cross-docking,
the practice of a facility receiving goods and shipping them to
customers that day or overnight, sometimes as a combined load with other
shippers' items. Cross-docked products typically remain at the facility
for less than a day.
According to Tom Patterson, a Saddle Creek vice president, tightening
lead times are prompting companies to cross-dock as an alternative to
expensive warehouse space and economically inefficient
less-than-truckload (LTL) shipping.
"We're seeing a lot of attempts these days to bypass the LTL market in
total," Patterson said. "Being an LTL carrier is becoming kind of a
dangerous place to play. So you're seeing solutions to try to build
truckloads at the point of origins at the stop-off as opposed to running
any LTL freight."
For executives choosing or designing a facility site, that means the
warehousing and distribution market understands a company's desire to
streamline operations - and is trying to innovate to permit for paring
down. As long as those outside providers can sustain their growth and
fund their innovations, those lean facilities that hold such appeal for
your company might just do the trick over the long term.